UK public borrowing rises in the year to date despite surprise fall in August
Public borrowing came in below analyst forecasts in August, official data showed on Tuesday, but continued to rise over the year to date.
The Office for National Statistics said public sector net borrowing, excluding public sector banks (PSNB ex), was £6.4bn, a £0.5bn year-on-year reduction. Royal Bank of Scotland is the last remaining public sector bank.
Of this, central government borrowed £4.4bn and local government borrowed £2.8bn. The Bank of England recorded a surplus of £0.9bn.
Most economists had pencilled in PSNB ex of around £7bn for August.
In the tax year to date - from April to August 2019 - net borrowing on the same basis was £31.2bn, however, £6.8m higher than the same period a year earlier.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The year-over-year decline in the PSNB ex in August is a good result, given that the Office for Budget Responsibility expected full-year borrowing to rise by 24% this year.
"That said, low borrowing largely reflected a £1.0bn year-over-year decline in interest payments, reflecting some volatility in the RPI, which determines payouts on index-linked gilts."
Tombs said that full-year borrowing was on track to reach £53.0bn or around 2.4% of GDP, which exceeds the chancellor’s 2% limit for the 2020/21 fiscal year.
"Sajid Javid, therefore, will be forced to announce a new, looser fiscal rule in the upcoming budget to implement his plans for faster growth in government spending and to follow through on his ambition to cut taxes," he said.
Tuesday’s release also marked changes for the first time to the way student loans are accounted for by the ONS.
"Outlays are no longer treated as conventional loans," the ONS said. "Instead, we spilt lending into two components: a genuine loan to students and government spending. This new approach recognises that a significant proportion of student load debt will never be repaid."” Previously, losses would only appear once the loan was written off after 30 years.
The new methodology has added £12.4bn to net borrowing in the financial year ending March 2019.
Pantheon Macroeconomics’ Tombs said: "This change raises the estimate of public borrowing in 2018/19 and will probably boost borrowing even more this year."
Howard Archer, chief economic advisor to the EY ITEM Club, said: "The public finances measured in terms of PSNB ex saw modest year-on-year improvement in August. This was the first improvement in the first five months of the fiscal year.
"This followed a reduced surplus of just £820m in July, down from £2.5bn. July is typically a month where the public finances are in surplus, given that it sees many medium-sized and large companies, as well as oil and gas firms, make corporation tax payments, while the second payment on account for self-assessment liabilities is also due."
Income and capital gains tax receipts rose 5.0% year-on-year in August, helped by high employment and rising incomes, while a 20.2% drop in debt interest payments, to £3.7bn, contributed to a subdued increase in central government expenditure of just 0.3%.