U.K. Has Smallest December Deficit Since 2000 as VAT Hits Record
Britain recorded its smallest budget deficit for any December in 17 years as value-added tax
receipts reached a record and the Treasury received a bumper credit from the European
Union. Net borrowing narrowed to 2.6 billion pounds ($3.6 billion), well below the median
forecast of economists, from 5.1 billion pounds a year earlier, figures showed. It left the
shortfall in the first nine months of 2017-18 at 50 billion pounds, 12% lower than a year
earlier.
The figures leave Chancellor of the Exchequer Philip Hammond on course to keep
borrowing in 2017-18 to the 49.9 billion pounds forecast by his budget watchdog in
November. But deficits are predicted to persist well into the next decade as a result of Brexit
and poor productivity. The challenge facing Hammond was highlighted on Monday when the
International Monetary Fund issued a downbeat assessment of U.K. growth prospects.
In December, Britain received a 1.2 billion-pound credit from the EU relating to amendments
to the 2017 budget. It was the largest such payment in at least 20 years and reflected
“adjusted member states’ contributions to reflect updated economic forecasts,” the Office
for National Statistics said. VAT, a tax on sales, rose 4.9% from a year earlier to an all-time
high of 12.3 billion pounds. The public finances were also aided by lower spending on welfare
and departmental costs. (Bloomberg)
EU Rebate Helps Reduce UK Public Sector Borrowing
The EU helped reduce British government borrowing in December after strong growth in
the Eurozone led to a rebate from the bloc. UK public sector net borrowing over the month
fell to £2.6bn compared with £5.1bn in December 2016, according to the Office for National
Statistics. This was far less than the £5bn expected by analysts and was the lowest level of
December borrowing since the millennium.
The decline was partly due to a credit of £1.2bn
from the EU. The bloc’s budget has been recalculated to reflect new economic forecasts and
lower spending, raising contributions from Eurozone countries and reducing the UK’s
payments. EU budget contributions are partly based on an estimate of each country’s share
of the bloc’s economic output. In November the European Commission downgraded its
forecast for UK economic growth in 2017 while increasing its estimates for the euro area.
Higher government tax receipts in the UK also contributed to the reduction in borrowing.
Value added tax revenues reached their highest level on record in December while taxes on
income and wealth were up 4% compared with the same month in 2016. (Financial Times)
UK Manufacturing Activity Strengthens: CBI
Growth in manufacturing output and domestic and export orders picked up in three months
to January, the Industrial Trends survey data from the Confederation of British Industry
showed. A net balance of 13% of manufacturers reported that they were more optimistic
about the general business situation. Nearly 33% of firms said the volume of output over the
past three months was up and 12% said it was down, giving a balance of +21%. The balance
of domestic orders came in at 21 percent and that for export orders at 24%, both grew
more than the previous quarter.
Employment grew at the fastest pace since July 2014 over the last three months, with further
growth expected next quarter. A net 20% reported an increase in employment. New orders
growth is expected to slow moderately, as growth in domestic orders eases. At the same
time, output is expected to grow at a similar pace next quarter. (RTT)
