PwC comments on September's public sector borrowing data

Oct 22, 2019

John Hawksworth, chief economist at PwC, comments on the latest public sector borrowing data:

"Today's data showed the UK public finances heading further into the red, with the deficit more than £7 billion higher in the first half of this financial year than the same period last year. This borrowing overshoot will not make the Chancellor's choices any easier as he heads towards his first Budget on 6 November.

For the six months to September 2019, cumulative public borrowing is now estimated at £40.3 billion, similar to the OBR's March 2019 forecast of £40.6 billion for the whole of the 2019/20 financial year after adjusting for their best estimate at the time of the impact of anticipated improvements in how student loans are accounted for that were introduced by the ONS last month. Public borrowing is generally significantly lower in the second half of the financial year due in particular to the peak of tax revenues in January, but it still seems likely that the budget deficit in 2019/20 will be well over £50 billion. 

Given that the Chancellor last month announced more than £13 billion of additional public spending in 2020/21, and may also wish to announce some tax cuts for that year, it therefore seems likely that the current 2% of GDP budget deficit ceiling for that year will be breached once the OBR update their economic and fiscal projections for the November Budget. 

The Chancellor may therefore choose to modify this 2% deficit target in the Budget, or possibly push it forward to be met in a later year on the basis that some short-term fiscal relaxation is needed to support the economy through the Brexit transition period."

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