A LOWER than expected Public Sector Borrowing Requirement last month
boosted both sterling and gilts and raised hopes that the deficit for
the full year to the end of March might be lower than the #50 billion
forecast by the Treasury.
The pound retrieved some of its recent losses and gained the better
part of 2 pfennigs on the German mark. The bull run in gilts continued
with supplies of the recently announced #200m of Treasury 8% 2003 and
#200m of Treasury 7[3/4]% 2006 both exhausted. The strength of gilts
market was one of the factors driving the FSTE-100 share index, up 16.7
points to 3025.0, to its fourth record in the last five trading days.
July is a good month for Government revenues with the self-employed
boosting income tax receipts and companies paying advance corporation
tax on their dividends. The PSBR also benefited from #1795m of
privatisation receipts from the first call on BT3.
Taking the month as a whole the PSBR was #1546m, well down on June's
#3972m. City economists had been looking for a shortfall of about
#1900m, but the range of forecasts was unusually wide with Barclays
economics department predicting #3000m and both UBS and Warburg going
for #1000m.
Too much should not be read into the PSBR figures so far. The fiscal
year is only four months old. The cumulative deficit is #14.9 billion
compared with #11.4 billion in the first four months of 1992/3.
Privatisation proceeds since the start of the year have totalled #3400m,
much the same as in the first four months of last year.
So far this year the central government's total cash receipts are 4%
higher at #66.8 billion. Within this Inland Revenue receipts are 0.5%
lower, but Customs and Excise revenues are 5.5% higher. Social security
contributions have increased by 3.5%. However, net departmental
receipts, excluding on-lending to local authorities and public
corporations, are 7% higher at #79.3 billion. Last year the PSBR
totalled #36.7 billion.
The pace of the recovery has been quicker than the Government thought
in March at the time of the Budget when it made its PSBR forecast. Any
undershoot will reduce the pressure on the new Chancellor of the
Exchequer, Kenneth Clarke, to increase taxes further in his Budget in
November.
Tax increases already announced by his predecessor, Norman Lamont, and
due to come into effect over the next two years, will boost Government
revenues by an estimated #10.3 billion, but this may not be sufficient
to bring the deficit in the public finances back to manageable
proportions, even after allowing for the recovery in the econony.
Last week the Bank of England warned that turning a blind eye to
public debt could endanger the Government's inflation target in the long
run, and said that further action might be required. Some economists
have suggested further tax increases of around #3500m will be required
in November.
* Students of Government statistics will have to waken up earlier from
next week. The release time of official data is to be brought forward
from 11.30 to 9.30am. Government sources said the Prime Minister was
responsible for the change to allow earlier information to the markets
and more informed analysis.
The Central Statistical Office, which releases the bulk of the data,
has already limited access to sensitive information and brought forward
release dates to reduce the risk of leaks. The US practice of releasing
sensitive economic information before the markets open has not been
adopted.
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