UK borrowing falling slower than hoped despite July surplus – as it happened - Digital Innovation for a Sustainable Future

British government’s income was £977m higher than its spending in July, but this year’s deficit target is at risk

Earlier:

6.13pm BST

The number of oil rigs in the US increased again last week in a further sign of raised production.

The Baker Hughes weekly report showed 10 rigs were added in all, taking the total to 491 and marking the eighth weekly increase in a row. All of them were oil rigs with no gas rigs added.

EXTRA U.S. DRILLING RIGS continue to target oil-rich rather than gas-rich formations. pic.twitter.com/SSg0O65l32

5.02pm BST

Heading into the weekend, the uncertainty over when the US Federal Reserve could raise interest rates has made for a cautious end to the trading week. Dovish minutes on Wednesday suggested a rate hike was off the table in the near future but subsequent comments from Fed members seemed to indicate otherwise. With oil slipping back from its recent highs, markets came under pressure again, although the August lull has meant trading volumes are thin. The final scores showed:

3.33pm BST

And here comes the denial:

UPDATE: UK PM Spokeswoman – does not recognise media report saying May is sympathetic to triggering article 50 by April 2017 at the latest.

3.07pm BST

A Bloomberg report suggesting that the UK government wants to trigger Article 50 – the start of the two year Brexit process – by next April has sent the pound lower.

Up until now, the UK was expected to delay Article 50 until at least the end of next year. ETX Capital said:

Big sell-off in sterling this afternoon amid rumours the UK wants to invoke Article 50 in the first half of 2017.

Cable is down more than 1% and flirting with the $1.30 level again after a report said Theresa May would like to start the exit process before French and German elections next year.

2.41pm BST

As expected, US markets have followed the trend elsewhere, slipping back in early trading on talk of the Federal Reserve perhaps hiking rates sooner than had been expected.

The Dow Jones Industrial Average is currently down 94 points or 0.5% while the S&P 500 and Nasdaq Composite both opened around 0.2% lower.

2.32pm BST

Earlier this week there were protests outside the Bank of England against its quantitative easing programme, with calls for different measures to be used.

One such is so-called helicopter money, and one supporter of the idea is Marino Valensise, head of the multi asset and income at Barings. He says:

In simple terms, HM is “monetary financing of fiscal spending”, a central bank who prints money for its government to spend; a practice definitely not included in the Bundesbank’s instruction manual. However, we should keep an open mind after all – Mario Draghi sees it as a “very interesting concept” and Loretta Mester from the Federal Reserve Bank of Cleveland considers it a possible “next step if … we wanted to be more accommodative”.

It is therefore important that we analyse, in simple terms, how HM could work. The first step would be to assess whether this type of monetary financing is allowed under current laws and regulations. In most jurisdictions, rules exist and limit the actions of a central bank.

In addition to ageing demographics in a number of key economic areas, there are three issues today that should be tackled. These are anaemic aggregate demand, persistence of excess supply and a growing social inequality. Any HM initiative must be dedicated to projects that aim to cure these.

It should help the majority of households by increasing their welfare and enhancing their disposable income, fostering confidence and promoting consumer spending, in order to benefit the majority of the population rather than enrich asset-holders by inflating financial asset prices. There could also be spending on long-term themes like education, and on structural issues strangling the economy, such as the banking’s sector non-performing assets.

I believe that HM is superior to QE, and much better suited to our current challenges. It represents a pragmatic and superior alternative to any other policy, although it cannot be a panacea for structural issues such as poor demographics.

In a heavily indebted world, suffering from low economic growth and facing serious political issues originating from inequality, HM has the potential to outperform any other policy.

2.12pm BST

Ahead of the US open, European markets are in negative territory as investors shy away from shares on renewed talk of a possible US interest rate rise after some hawkish comments from Federal Reserve board members.

The Stoxx 600 is down around 0.7%, heading for its biggest weekly loss since the middle of June. Earlier in the week the index hit a seven week high, but such volatility is typical of summer markets with light volumes.

1.50pm BST

Several hours ago, I promised fresh news about the economic crisis in Mongolia (we’re a broad church in the liveblog).

Our lower growth estimate stems partly from the ancillary effects of Mongolia’s weaker terms of trade and partly from the country’s mixed mining policies, which discouraged foreign direct investment.

Another key deteriorating risk factor for Mongolia relates to its public finances.

Mongolia, a mineral-rich and landlocked $12 billion economy bordering Russia and China, is staring at a full-blown balance of payments crisis. It’s caused barely a ripple in global financial markets, but the nation’s economic meltdown offers instructive lessons to far bigger resource-reliant economies like Brazil, Venezuela, Russia and Saudi Arabia.

This is an economy that gives new meaning to what economists call the resource curse. An overabundance of natural resources can result in lopsided economic growth, government waste and boom-bust cycles that can leave a country’s finances in tatters.

Mongolia is having an epic economic meltdown https://t.co/HKzeNnQZFa pic.twitter.com/KuQ3dhOkKZ

1.31pm BST

Britain’s independent fiscal watchdog, the Office for Budget Responsibility, has warned that the government is on track to overshoot its borrowing targets in 2016-17.

The OBR is concerned that tax receipt growths have slowed this year, pulling July’s surplus down to only £1bn.

1.00pm BST

The pound has dropped by half a cent against the US dollar so far today, to $1.312.

But even so, sterling has still gained 1.6%, or two cents, this week.

12.52pm BST

In other news, Britain’ s housing market seemed to cool last month, with estate agents seeing fewer potential buyers….

12.20pm BST

John McDonnell MP, Shadow Chancellor, is concerned that Britain’s £1bn surplus in July is smaller than a year ago.

Today’s public finances show a budget surplus that has fallen compared to this time last year. And the Treasury’s own comparisons of independent economic forecasts show a dramatic revision downwards in growth and upwards in inflation, unemployment and public sector net borrowing.

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.

“The country needs a different plan that will end austerity, and start to invest in the infrastructure and housing a 21st century economy demands. That’s why Labour would invest £500 billion to rebuild and transform our economy.”

12.07pm BST

Sam Tombs of Pantheon Economics has crunched today’s public finance numbers, and concluded that the government is on track to miss its borrowing target for 2016-17.

Here’s his workings out:

Underwhelming July surplus leaves public borrowing set to hit £66.7B this year, £11.2B more than the OBR forecast: pic.twitter.com/Rij5rqt0cG

Public finances show clear signs of a slowdown: tax receipts grew just 3.4%y/y in July, below the OBR’s 5.1% fc for the 4th month in a row.

“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.”

11.30am BST

Chancellor Philip Hammond will be “slightly disappointed” that July’s surplus dipped to just below £1bn, from £1.2bn in July 2015, reckons Howard Archer of IHS Global Insight.

July usually sees a surplus in the public finances as it is a key month for tax receipts). While the public finances are expected to be increasingly pressurized by the Brexit vote going forward, it was premature for there to have been much impact in July. However, the ONS did indicate that the July figures included forecasts and the data can also be influenced by different timings of tax payments.

11.26am BST

George Osborne has put down his gun and turned to Twitter:

After all these years, I finally have a front page in the Daily Mirror worth keeping

MIRROR: Osborne goes Rambo #tomorrowspaperstoday pic.twitter.com/beq2PjrCCG

10.54am BST

Martin Beck, senior economic advisor to the EY ITEM Club, isn’t terribly impressed by today’s numbers:

“July’s surplus was smaller than the £1.2bn surplus recorded in July 2015 and left public borrowing in the fiscal year to date at £23.7bn, only 11.3% lower than the £26.7bn seen in the same period in 2015-16.

This compares with the OBR’s Budget forecast of a 26.3% drop in borrowing for 2016-17 as a whole.

10.49am BST

10.43am BST

Here’s Laith Khalaf, senior analyst at Hargreaves Lansdown, on today’s public finance data:

‘July is normally one of the bumper months for tax receipts, because HMRC gets a lot of payments of income tax from self-employed people, and also quarterly corporation tax payments from companies, which is why the government found itself quids in last month.

Of course the elephant in the room is Brexit, and what effect this will have on tax receipts going forward, but so far the hard economic data has actually been pretty robust, though it’s obviously very early days.

That could well see previous borrowing targets thrown out of the window, if the new government decides supporting the economy is more important than keeping a lid on debt.’

10.18am BST

PwC chief economist John Hawksworth has cast his expert eye over Britain’s public finances, and concluded that they’re not too shabby.

“The public finances were in surplus by £1 billion in July, which is a reasonable performance albeit slightly down on the £1.2 billion budget surplus recorded in July 2015.

“For the four months to July, the cumulative budget deficit in this financial year is running around £3 billion lower than in the same period last year, though the rate of deficit reduction has been slower than the OBR forecast back in March.

“Overall, as with other official data released this week for retail sales and the unemployment claimant count, there is no real sign yet of a downturn in economic fortunes following the Brexit vote. But it will be some months before we get a clearer picture of this as it will take time for companies to adjust their investment and hiring plans to the new post-referendum environment.”

10.05am BST

The Chief Secretary to the Treasury, David Gauke, says today’s public finances show Britain is in good shape to handle the aftermath of the EU referendum vote.

Here’s his official statement:

“With the public finances in surplus in July, our economy starts from a position of strength to face any economic turbulence following the vote to leave the EU.

“As we keep working to cut the deficit, we are well-placed to handle any challenges and seize the opportunities as our economy adjusts. We are determined to build on our economic strengths to ensure Britain is a country that works for everyone.”

We are well-placed to handle the challenges & seize the opportunities as our economy adjusts & builds on our economic strengths.

10.03am BST

Correction: The UK national debt is £1.6 TRILLION, of course, not £1.6bn. Apologies, and thanks to those of you who kindly pointed it out. #grauniad.

9.55am BST

July’s £1bn surplus won’t make much of a dent in Britain’s national debt.

The UK now owes £1.6 trillion <corrected> to investors, which equates to 82.9% of GDP (the value of all the goods and services currently produced by the UK economy in a year).

9.54am BST

Fraser Munro, public sector finance statistician at the ONS, is tweeting the key points from today’s data.

This chart shows how the UK has borrowed less this year, than in 2015-2016.

July public sector #borrowing in surplus by £1.0bn; £0.2bn less surplus than July 2015 pic.twitter.com/0vKBYCaLY8

UK pub sector #borrowing £23.7bn for financial year-to-date; £3.0bn down on last year; lowest since 2008 pic.twitter.com/3sz82SBoAT

9.50am BST

Anyone looking for evidence of Brexit vote impact in today’s report should tread cautiously, says the ONS, as the figures could easily be revised in future.

The data presented in this bulletin presents the latest fiscal position of the public sector as at 31 July 2016 and so includes the first post-EU referendum data.

However, estimates for the latest period always contain a substantial forecast element and so any post-referendum impact may not become clear for some time.

9.46am BST

The BBC’s Joe Lynam reminds us that July’s public finances are usually decent, as firms often pay their quarterly corporation tax bills.

UK ran a budget surplus – excluding state-owned banks – of £1bn last month (less than expected). July usually good month for receipts

9.37am BST

Breaking: Britain ran a surplus of £1bn in July, thanks to a pick-up in corporation tax receipts.

That’s less than some analysts had expected.

UK ONS: Public sector net borrowing (excluding public sector banks) was in surplus by £1.0 billion in July 2016;

UK pub sector #borrowing £23.7bn for financial year-to-date; £3.0bn down on last year; lowest since 2008 https://t.co/ingi5Aj6Dc

9.28am BST

Robin Bew of the Economist Intelligence Unit agrees with Joe Grice….

Decent #UK retail data is no surprise. Too early for FX effect. And investment impact of #Brexit will hit employment only slowly

9.13am BST

Today’s public finances will show whether the UK government is still on track to hit its deficit targets for this financial year.

Former chancellor George Osborne has his mind on other issues, though – he’s been spied blasting a machine gun at a former Viet Cong base near Ho Chi Minh city.

George Osborne spotted firing machine gun on holiday in Vietnam https://t.co/UFuLMW8g06

9.00am BST

A lacklustre start to trading has seen London’s FTSE 100 index drop by 17 points, or 0.24%, to 6852 points.

But budget airline easyJet is defying the selloff. Its shares have jumped by 2.6% to the top of the Footsie leaderboard.

Some spivvy talk of bid interest in easyJet. Must be August!

8.33am BST

Oil has hit its highest level since the EU referendum, driven by ongoing speculation that producers could reach some kind of deal soon.

Brent hit $51.22 per barrel, an eight-week high, putting it on track for its eighth day in a row.

From bear to bull market in just 16 days: #Oil hits highest level since #Brexit vote. https://t.co/OiPwfIxtg2 pic.twitter.com/g839t8mKPe

Oil markets making the Forex look like a calm reasonable environment

8.15am BST

This was billed as the week when Britain would discover the economic pain caused by the Brexit vote.

And the patient looks to be in better health than some experts had feared. So far, we’ve learned that:

They don’t tell us anything about what businesses were doing, they don’t say anything about trade…..but they do say that consumers were spending strongly.

Does that mean there won’t be a recession? No. The story is still to unfold.

7.55am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

After a week of largely encouraging economic data from Britain, there’s still one important measure before we can clock off for the weekend – July’s UK public finances.

The first post-referendum set of public borrowing figures look set to be disappointing. We have pencilled in a surplus of £1bn in July, marginally lower than a year ago.

July is seasonally a good month for tax receipts with a second wave of self-assessment tax payments, quarterly corporation tax instalments and the first of three payments through the year by oil and gas firms.

The OBR has said it planned for modest tax receipts from those oil and gas companies on the back of weak commodity prices. Our simple arithmetic process points to a surplus on the government budget of £1bn for July, but in light of modest expectations for those tax receipts and poor outturns in earlier months of this financial year the risk is for a smaller surplus or possibly even a deficit.

Our European opening calls:$FTSE 6860 down 9
$DAX 10590 down 13
$CAC 4429 down 8$IBEX 8527 down 23$MIB 16657 down 17

UK borrowing falling slower than hoped despite July surplus – as it happened