British Public Finances Surplus Disappoints

• Public finances surplus reported at £1 billion


• Public borrowing also lower

The British government had a smaller than anticipated budget surplus for July, the first full month since the UK referendum. Public sector borrowing was £1 billion in surplus for the month of July, about 17% less than the figure reported a year earlier which was £1.2 billion. Over the years the month of July has always reported a surplus for public finances, due to revenue generated from corporation tax. With the achieved smaller than expected public finances surplus, the new chancellor, Philip Hammond is now left with a more difficult task of boosting the post-Brexit economy while trying to cut down the UK’s deficit.

Meanwhile public borrowing for 2016 till date is 11.3% lower than a year earlier. In the April to July period, the total was £3 billion smaller than the same period in 2015 at £23.7 billion. The entire public sector’s net debt for the month of July was £1.6 trillion, an estimated 82.9% of the country’s GDP, which was £35.3 billion more than in July of 2015.

The Office of National Statistics (ONS) stated that, “July was the second month in a row in which the debt had fallen as a percentage of GDP. In June, it was 84% of GDP.” Their statement signified a year on year increase in the country’s GDP at a rate that outpaced the growth rate of net debt, however the ONS also expressed the cautious inferring of trends from only 2 months’ worth of data.

Howard Archer, the chief UK economist at IHS Global Insight stated that, “Slightly disappointing news for the chancellor, Philip Hammond, as the public finances could only eke out a small surplus in July. The public finances look poised to take a serious hit from probable significantly weakened economic activity after the Brexit vote taking a toll on tax receipts in particular. It also seems probable that unemployment will rise while any slowdown in the housing market will hit stamp duty receipts.”

The ONS made a presentation of the latest fiscal position of the public sector as at 31^st of July 2016 including the first post EU referendum data in their bulletin. They further added that estimates for the most recent period included a significant amount of inconclusive projection elements and so any post Brexit effect may be unclear till further notice.

Samuel Tombs, of the consultancy Pantheon Macroeconomics, said the “underwhelming surplus leaves the chancellor with little wiggle room. July’s relatively small surplus means that the chancellor will be able to put together only a modest package of measures to support the economy in the autumn statement later this year,”

Labour shadow Chancellor John McDonnell also stated that, "The UK economy needs immediate investment from the Government, rather than sticking to the failed policies of George Osborne which have helped create the problem. Britain is on hold waiting for Philip Hammond to tell us whether he will stick to his predecessor's planned cuts to investment, and firms and households can't wait until the autumn to find out."