June’s public finance figures continued the underlying deterioration in the fiscal position evident since the beginning of the financial year, providing a timely reminder that the new PM won’t get a free “fiscal lunch”.
Public sector net borrowing (ex. public sector banks) of £7.2bn in June was well above the consensus expectation of £3.9bn and last year’s figure of £3.3bn. This reflected subdued receipts growth of 1.2%, compared to the 2.9% expected by the OBR for the year as a whole and a 7.0% y/y jump in current expenditure. As a result, borrowing in the first three months of the fiscal year, of £17.9bn, was £4.5bn higher than last year. If this trend persists over the remaining nine months of the fiscal year, PSNB ex. would overshoot the OBR’s 2019/20 forecast of £29.3bn, by £2.1bn.
There will be further bad news for the new PM in September as a change in the accounting treatment of student loans in September will raise the deficit by more than £10bn a year. And yesterday’s report by the OBR showing that a no deal would push up borrowing by a further £30bn a year could remove the room for tax cuts/spending rises in a no deal scenario. However, we doubt any of this will prevent the new PM from loosening fiscal policy. Just how far borrowing rises will depend on whether there is a deal or a no deal, or a delay.
UK’s June budget deficit hits four-year high as government spending rises – business live – The Guardian