UK’s Public Sector Borrowings Surge Past £11bn in October 2019 – ONS Report

Public sector borrowings measure the value gap between spending and income for public corporations, the state government, local governments during the previous month. A positive gap indicates a budget deficit, while a negative difference shows a surplus.

As per the data revealed by Office for National Statistics (ONS) on UK's public sector borrowing, as of November 21, 2019, the British public sector borrowing hit a 5-year high since 2014. The department reported that October 2019, public sector borrowings was £2.3bn higher against the month-over period to £11.2bn.

Borrowings on a year-to-date basis stood at £46.3bn, which was approximately £4.3bn higher against the same period of the corresponding year and the highest April-to-October borrowing over the past two years.

James Smith | Research Director at the Resolution Foundation, commented that:

The deterioration in 2019 public finances is a sombre backdrop against the general election manifesto presented by different political parties, together with weaker global growth and domestic outlook.

However, it is widely expected that government spending in all probability will rise as per the pledge by both Conservatives and Labour parties during the general election campaign to increase public spending for health, schools, police and infrastructure.

Labour’s plan suggests that overall deficit could surge by approximately 4% of the economic output towards the end of the five-year parliamentary term, primarily because of infrastructure investment. Though, Sajid Javid - Chancellor, has said that Tory’s budgetary rules would be relaxed.

However, economists commented that a slump in public finances in October 2019, would not have any impact on the Conservative and Labour expenditure plan.

As per ONS data, the public sector net debt minus public sector banks at the end of the October 2019 was around 80.4% of gross domestic product (GDP) to £1,798.5bn, which was £32.1bn higher or approximately 1.1% decrease against the year-over period.

Debt excluding the Bank of England in the October 2019, was around 72.2% of the gross domestic product (GDP) to £1,615.0 bn, which was approximately 0.3% or £42.8bn higher against the same period of the previous financial year.

Central government’s net cash requirement was £17.3bn higher against the year-ago period to £33.0bn, and central government net cash requirement excluding both UK Asset Resolution Ltd and Network Rail stood at £32.8bn, which was around £15.5bn higher against the corresponding period of the previous year.

Let’s understand important terminologies related to the UK’s public sector finances

Public Sector: UK’s public sector comprises of 6-sub-sectors, that includes the Bank of England and public finance corporations (or Public sector banks), the central government, local government, public sector pensions and public non-financial corporations.

Public sector net borrowing excluding public sector banks: UK’s public sector net borrowing excluding public sector banks reflects the value difference between revenue raised and total spending (capital expenditure – capital receipts). It is also referred to as "the deficit".

Government or Public sector net debt minus public sector banks: UK’s government sector net debt minus government sector banks depicts the value of money the government sector is obliged to pay to the private sector organisation, including foreign organisation as a result of issuing Treasury Bills and gilts, excluding the amount of cash and other short-term moneys it possess. It is also referred to as the "National Debt".

However, borrowings reflect the value variance between total receipts and total spending for a certain period of time and debt that reflects total amount of money outstanding at a point of time.

In October 2019, higher public borrowings were the outcome of a steep rise in spending, potentially related to Brexit preparations, while muted receipts reflect that economic growth could be slower in future.

The major surge in spending was in government goods and services, which surged by approximately £2.3bn in October against the year-over period and was up by £12.2bn in the year-to-date against the same period of the corresponding fiscal year.

On the other hand, the government’s receipts increased just £200m in the month under consideration and £10.2bn on a year-to-date basis, against the same period of the previous fiscal year.

Also, ONS reported that the Office of Budget Responsibility earlier reviewed the EU resolution in their Economic and Fiscal Outlook of March 2019 report. However, details in the March 2019 report is still subject to further negotiation. It also reported that, at this juncture, there is uncertainty to complete a formal assessment of the impact on Britain's public sector finances.

Howard Archer | chief economic adviser at EY Item club, on weak government receipts commented that: “The weak government receipts, during   October 2019, were “consistent with the general evidence that the economy had a challenging start to the fourth quarter”. He also added that the broader evidence of softening economy was corporation tax receipts declined 6.2% in October 2019, against the year-over period.

Meanwhile, the equity market in London seemed to overlook the higher borrowing news amid increased trade optimism over the US-China trade deal. As Chinese President Xi Jinping stated as on November 22 (Friday), that, China holds a positive attitude for a trade deal with the United States but will fight to get the best deal.

The world’s two largest economies are locked into enduring trade rifts for more than a year, over what the United States President Donald Trump perceived the unfair Chinese trade practices and protectionist policies.

Both the countries have hit each-others with hefty tariffs and regulations that have cost each of them millions of dollars till now.

Meanwhile, the Chinese Premier Xi Jinping also commented that “we don't want to start a trade war, but we are not afraid to that, when required we will fight back, we have been working closely to avoid a trade war”.

Post news of the US-China trade deal progress, the broader FTSE 100 index so far had added 72 points or 0.99% to 7,309.98 (before the market close at 10:53 AM GMT) and registered an intraday high of 7,323.99 and a low of 7,238.47, respectively. The mid-cap benchmark FSTE 250, traded 41 points or 0.20% higher at 20,410.58 and registered an intraday high of 20,494.68 and a low of 20,346.27, respectively.

Stocks like GLENCORE PLC (GLEN), CENTRICA PLC (CAN) and COCA-COLA HBC AG (CCH) were among the top risers at FTSE 100 index at the London Bourse.