UK borrowing figures show large surplus in January: reaction



The Government enjoyed its highest surplus in public finances for five years in January, official borrowing figures showed on Thursday. Here's how economists reacted.

James Knightley, ING

UK public finance numbers for January have come in showing a bigger surplus than expected in January while the deficit for December was revised lower. This may be perceived as lowering the threat of an imminent AAA rating downgrade from one of the major ratings agencies and so is going to be a short-term positive for sterling.

However, the improvement is deceptive as it largely reflects the transfer of the Royal Mail's pension fund assets to the government - they also get the liabilities but these will be paid out over many decades.

January is always a good month for revenues as it is the deadline for income tax and there are big corporation tax revenues in the month too. This year it also got a boost from the transfer of money from the Bank of England, reflecting the partial payment of some of the interest income the BoE has received on its gilt holdings resulting from QE.

Consequently, the underlying story isn't quite as good. Indeed, the UK's AAA rating remains under threat and with economic activity remaining subdued and tax revenues disappointing, Chancellor Osborne has little wiggle room when he presents his annual budget next month.

Howard Archer, IHS Glbal Insight

The January public finance data showed a better surplus than hoped for, and eases a little bit of pressure on the Chancellor ahead of his budget on 20 March. The Chancellor may now only modestly miss his fiscal targets for 2012/13, with the result that he is unlikely to significantly change tack. However, with the economy still struggling markedly for even modest sustainable growth, the Chancellor is under pressure to find more money for capital projects.

Indeed, the underlying picture remains difficult for the Chancellor and the UK’s AAA rating is still clearly at very serious risk despite the better than expected January public finance figures.

Martin Beck, Capital Economics

On the face of it, January's public finances data shows 2013 beginning on a very strong note. The surplus of 11.4 billion pounds was the second-largest January surplus since records began in 1993.

Admittedly, the figures were flattered by the 3.8 billion pounds transfer from the Bank of England's Asset Purchase Facility - February's and March's figures will see a similar effect.

However, even excluding the transfer, January's surplus was 7.6 billion pounds compared to a surplus of 6.4 billion pounds in 2012.

Nonetheless, excluding one-offs, underlying borrowing in 2012/13 is still likely to come in 3-5 billion pounds above the OBR's forecast of 119.9 billion pounds. So with borrowing still very high and fiscal progress appearing to have ground to a halt, the dilemma faced by the Chancellor at next month's budget over whether to tighten fiscal policy, or loosen and go for growth, remains acute.

Tom Vosa, National Australia Bank

It does spare the Chancellor some blushes in that the 80.5 billion pound borrowing target that they had forecast in the Autumn Statement now looks vaguely doable. But we know that the ONS has said the bond purchases will do less to reduce public sector borrowing than the OBR had forecast back in December.

So it's still essentially a fairly close race. I think within the budget, most improtantly, the three- to five-year borrowing plans may still need some upward revision and the government got 1 billion less than they had anticipated from the 4G auction yesterday.

A modest improvement, but we are still looking at a need for further fiscal consolidation if they wish to continue with their plans... Overall, in the March budget I think we will see some upward revisions to borrowing targets but it will be in the general rule of public-sector investment.

Rob Wood, Berenberg Bank

The numbers for January were a bit better I think. The underlying surplus was a bit better than we had expected. It's hard to compare that to consenus numbers because there wasn't a lot of information before the release on how much money would be transferred from the Bank of England to the government, but nevertheless it seems a bit better than might have been expected.

That being said, there are two points to keep in mind. First (Other OTC: FSTC - news) , the ONS have said, unfortunately for Osborne, that the government can transfer only 9.1 billion pounds from the Bank of England to the government each year. Osborne was planning on transferring 11.5, more than 11.5 this fiscal year actually, to hit his debt forecast, so we suspect that this means that he'll miss by quite a margin.

Additionally, public sector borrowing is still running higher than in the previous year in an underlying sense and that's likely to continue with growth coming in weaker than the government forecast.

So all in all a better set of figures than expected but doesn't really change the big picture: the deficit is going up because growth is week.

Victoria Clarke, Investec

This is a little bit of better news this time around. We've got the January surplus and it's a touch firmer than expected, helped by the one-off gilt coupon cash.

Overall though, we still see the Chancellor overshooting the OBR's borrowing forecast by around up to 10 billion over the fiscal year to date. But it's not as bad a miss on these latest figures as we could have been looking at, given the run rate a couple of months ago.

The big thing up ahead is obviously the Chancellor's upcoming budget on March 20 and for that, on these numbers, he is going to be having a bit of a scratch around to see whether there are any extra one-off savings, as we've seen him do with each budget and Autumn Statement over recent years.

But in general, it's not going to be enough of a miss of the OBR's forecast to encourage him to move away from what he would still class as 'Plan A'. So it will be business as usual for austerity and therefore that squeeze on the UK economy will continue.

Source: Reuters