July public finance data - PwC comments

Aug 21, 2019

Commenting on July's public sector net borrowing figures, PwC chief economist John Hawksworth said:  

"Today's public finance data provide a further indication that the long period of falling budget deficits in the UK since 2009/10 is likely go into reverse in 2019/20. This partly reflects a slowing economy and partly government action to cut taxes from April and ease off on austerity as we approach Brexit.

For the first four months of this financial year, public borrowing is estimated at £16 billion, which is £6 billion more than in the same period last year. The budget surplus of £1.3 billion in July, which is always a good month for the public finances due to self-assessment receipts, was also £2.2 billion smaller than the surplus last July.

For the financial year to date, the widening budget deficit reflects central government receipts rising by only 2.3% compared to last year, whereas central government spending is up by 5.3%. It is still early days in the financial year, but if these trends continue then the budget deficit for 2019/20 as a whole could be higher than the OBR's March forecast of £29.3 billion, excluding the impact of methodological changes. 

The ONS also now estimates that changing methodological treatment of student loans to be introduced from next month will add around £12 billion to the budget deficit in 2018/19 (or £13 billion including some other smaller methodological changes). 

Looking ahead, both these methodological changes and the deteriorating trend in the budget deficit in recent months will eat into the £26.6 billion headroom that the OBR estimated in March that the government had in meeting its short term fiscal target to keep the budget deficit below 2% of GDP in 2020/21. 

If, as expected, the new Chancellor adds £2 billion or more to planned public spending in 2020/21 in the one year spending review scheduled for next month, this will further narrow the fiscal headroom available. But supporting the economy through potential Brexit-related turbulence is likely to be the top priority in the spending review and Budget this autumn, even if this implies some further widening of the budget deficit next year."

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