The HM Treasury’s surplus of £1 bln in July fell short of the £1.2 bln figure posted in July of last year, and below the consensus-expected £1.6-£1.9 bln. However, amid a steady decline in government borrowing, the budget deficit has narrowed despite post-Brexit anxiety, according to data from the Office for National Statistics (ONS).
“The underwhelming surplus leaves the chancellor with little wiggle room,” Samuel Tombs of the research firm Pantheon Macroeconomics said. “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,” he added.
July is typically the month when the budget posts its best results in its respective year, meaning the fiscal conditions might be feeling a bit of a squeeze toward the yearend. However, it represents a surprise and a boost in confidence for some, as the concern surrounding Brexit had almost ruled out any prospect that the budget would post a surplus at all.
David Gauke, Chief Secretary to HM Treasury, noted: “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.”
The overall national debt of the UK has exceeded £1.7 trln, or 79.8pc of GDP, which stands at £2,178.62 trln as of July. Amid the government’s commitment to work toward narrowing the budget deficit and decreasing the debt burden, there are currently voices coming from the Labour camp calling for an expansion of fiscal stimulus in order to boost growth, even though the recent macro figures for July suggested the economy is resilient and expanding.
“The UK economy needs immediate investment from the Government … 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,” shadow Chancellor of the Exchequer John McDonnell said.
Even though the Labour’s call contradicts the current cabinet's targets for the economy to achieve maximum market sustainability, a £500 billion infrastructure investment has been deemed rather feasible under the current fiscal circumstances. However, the New Tory government has no desire to hike its expenses at this point. Decreasing the debt burden, whatever it takes, seems to be the top Conservative priority.
In the wake of the post-Brexit reality, the UK’s corporate tax receipts surged 8.5%, while income tax receipts added 1.9%, with tobacco receipts having fallen significantly, the ONS said. The government’s borrowing dropped £3 bln year-to-date compared to the same period last year to £23.7 bln.
The Labour Party's call to prop up spending might be heard after all, Martin Beck of the UK-based global consultancy EY ITEM Club noted.
“Some form of fiscal stimulus to support the economy in the face of Brexit-related worries seems almost certain,” he said. “And with the Exchequer enjoying record-low borrowing costs, there is unlikely to be a more opportune time to turn on the fiscal taps.”
