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Highlights
Government borrowing in May surpassed forecasts despite increased tax receipts
National Insurance hike weighed on key sectors, including construction and retail
Receipts from Reeves’s fiscal policy fell short of OBR projections
The UK public sector, linked to the FTSE 100 and FTSE 350 indices, saw higher-than-expected borrowing in May, as tax revenues under Chancellor Rachel Reeves’s revised fiscal policies underperformed initial expectations. According to newly released figures, public borrowing remained elevated despite increased receipts from income and employment-related contributions.
Construction sector sees strain from National Insurance changes
The construction industry has been impacted notably under the recent fiscal reforms, facing added pressure from a surge in employer National Insurance contributions. The policy, introduced as part of last year’s Budget announcement, was intended to bring in significant additional revenue. However, early data reveals that cash flows from this sector did not meet projections, contributing to the shortfall in anticipated revenue.
Retail activity slows amid tighter tax landscape
Retail companies, many of which are listed under the FTSE 100 and FTSE broader index, also experienced subdued performance as spending cooled during the period. Latest figures indicate that retail dipped, coinciding with the fiscal measures enacted earlier in the year. Rising operational costs, influenced by increased tax burdens, have challenged margins and may be influencing shifts in consumer demand.
Business closures rise following fiscal tightening
May data indicates an uptick in company insolvencies, particularly among small and medium-sized enterprises, some of which fall under the FTSE AIM UK 50 INDEX. This movement reflects heightened strain in the business landscape as companies grapple with a rise in statutory payments. The slower-than-expected response in tax collection has raised concerns around the resilience of business activities under the current framework.
Borrowing outpaces forecasts despite growth
Figures released by the Office for National Statistics (ONS) show a notable increase in government borrowing in May, even though total tax receipts were higher than in the same month last year. The shortfall in forecasted tax revenue, according to the Office for Budget Responsibility (OBR), suggests that expectations tied to the new policies may require adjustment. Public sector net borrowing rose compared to both projections and the prior year’s levels.
Tax revenues increase, but miss forecasted levels
Tax receipts from PAYE income tax and employer National Insurance contributions did show a year-on-year rise. However, these gains did not align fully with the projected outcomes set during the fiscal planning process. The deviation, though relatively narrow, highlights the difficulty in precisely gauging the economic impact of large-scale tax changes within a short timeframe.
Sector performance across FTSE indices reflects broader economic trends
Across the FTSE 350 and FTSE AIM 100 Index, sectoral movements mirror the broader economic climate shaped by fiscal tightening. While revenue collection is up from last year, borrowing patterns signal that spending continues to outpace income, challenging efforts to consolidate public finances in the near term.
