The British pound gave a mixed reaction to the upbeat UK public finances data published by the Office for National Statistics (ONS), Thursday.
UK public sector borrowing shrank to £5.7 billion during August compared with a year earlier. That was below expectations and the lowest borrowing figure for the month of August since 2007. Public finances data detail the Government budget deficit, including all the debt payment and tax income flows each month.
The positive data supported the British pound against the euro. However, it remained weaker against the US dollar which is still benefitting from the Fed’s announcement late Wednesday.
The surprisingly positive public borrowing data were supported by high tax sales receipts from the month's strong retail sales performance. It also provided some welcome good news for Chancellor of the Exchequer Philip Hammond.
The data provided additional positive news with the financial-year-to-date numbers.
Between April and August 2017, total UK Government borrowing was £28.3 billion. That’s £200 million lower than the same period during 2016. It’s also the lowest year-to-date figure for August since 2007, before the credit crunch.
While the public finances data were more upbeat than expected, it wasn’t all good news. Income tax and capital gains receipts retreated from the July highs and barely increased during August.
Corporation tax revenues, meanwhile, fell 4.3% in August compared with a year ago. That’s a signal that businesses aren’t performing as well, or investing as much as they typically do this time of year. This disappointing detail is likely linked to ongoing Brexit-related uncertainty.
Chancellor Hammond has come under fire for his tight grip on the public purse. However, Thursday’s data could well provide him some room to reduce the Government budget deficit more slowly over the coming years.
He has already extended his deadline to do that until the mid-2020s. But, with forecasts for the 2018-19 fiscal year expecting weak public finances, a good performance in the current fiscal year would provide some welcome breathing space, should that come to pass.