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UK public finances benefit from EU credit in December
UK public borrowing in December was the lowest since 2000 thanks largely to one-off factors and is expected to deteriorate in 2018.
Public sector net borrowing excluding public sector bank, known as PSNB ex, fell to £2.6bn last month from £5.1bn a year earlier and almost half the consensus forecast for £5.0bn.
PSNB ex has shrunk to £50bn for the tax year so far, which is £6.6bn lower than the prior year and the lowest borrowing since 2007 as the government continues with its austerity policies.
Tax receipts rose 3.3% year-on-year in December, below the 4.4% average of the previous eight months, with the falling deficit more to do with lower government spending and was boosted in December by a £1.2bn credit from the European Union due to the underperformance of the UK economy. This mean central government expenditure dropped £0.4bn or 0.8% year-over-year.
At the end of December the public debt stood at £1.8trn, equating to 85.4% of gross domestic product, up £62.3bn since the end of December 2016.
UK public sector net cash requirement was £25.1bn in December versus a revised £13.2bn last time, while the central government net cash requirement was £18.8bn, down from a revised £12.4bn. Departmental spending fell by 3.1% year-over-year, compared to an average rise of 1.9% in the first eight months of 2017/18.
Economist Ruth Gregory at Capital Economics said it wouldn't do to get too carried away by these figures, not least as the one-off EU credit was a large factor, reflecting changes in budgetary contributions.
"And some deterioration in early 2018 still looks in prospect as strong self-assessment tax receipts collected early last year - due to changes in the dividend tax rate - won't be repeated," she said, predicting borrowing will come in quite close to the Office of Budget Responsibility's current £49.9bn forecast for the 2017/18 fiscal year.
"Nonetheless, if we are right in thinking that the OBR is too gloomy about the prospects for GDP growth, then borrowing should come down at a faster rate than it expects further ahead."
Economists at Pantheon Macroeconomics said extrapolating the trend would mean borrowing could total £40.6bn this fiscal year but the fall in self-assessment tax receipts and strong growth in central government investment and departmental expenditure in the remaining months of the year, if departments use all of the funds allocated to them is likely to see around £48bn of borrowing.
"So, with the economy set to continue to struggle in 2018 and little margin for error in meeting his fiscal rules, the Chancellor has little scope to ease the fiscal consolidation plans any further."