Monday, November 16, 2015

UK: Public finances data to be closely scrutinized - RBS

FXStreet (Delhi) – Ross Walker, Senior UK Economist at RBS, suggests that the UK public finances data for September will be the final set of monthly figures ahead of the Autumn Statement on 25 November 2015 and October’s data will also be closely watched as this is an important month for corporation tax receipts.

Key Quotes

“Half-way through the financial year, borrowing appears to be running a little above official (OBR) forecasts. Taking the first six months of the 2015-16 FY, central government tax receipts are up 4.0% (vs 3.6% OBR forecast), alongside a modest overshoot in central government spending (0.7% vs 0.6% forecast). Hence, the main reason for the projected overshoot in full-year PSNB-ex borrowing is because local government borrowing is overshooting (by a cumulative £1.6bn in the first 6 months of the FY).”

“So far in 2015-16 FY, tax receipts have been fairly solid with broad-based increases (eg, income tax & capital gains tax +4.2% y/y, VAT +4.4% y/y, NICs +4.7% y/y). On the central government spending side, spending by government departments shows an overshoot (growth of 0.8% y/y vs the OBR forecast of 0.0%) but there is a partial offset from lower interest payments on government debt (-1.3% y/y vs the OBR forecast of +3.3% y/y) courtesy of low interest rates and low inflation. We forecast PSNB-ex borrowing of £6.0bn in October, £1.1bn lower than the same month a year earlier.”

“The principal risk in the remainder of the financial year is that any slowdown in the economy quickly results in borrowing overshoots. The OBR’s economic forecasts are prudent (eg, nominal GDP growth of just 3.6% and average earnings growth of 2.3% in 2015-16) but lower-than-expected oil prices and struggling equity markets are likely to put a further dent in revenues. The UK is making steady, if unspectacular, progress in reducing public sector borrowing, but its structural deficits remain among the largest in the developed world and the risks remain tilted towards borrowing overshoots.”
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