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UK Net Public Sector Borrowing Narrows

James Boston
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UK Net Public Sector Borrowing Narrows

June’s Public Sector Net Borrowing figures have just been published in the UK and while still showing in deficit there is a welcome narrowing. The figure of £9.506Bn is an improvement on the May number of £11.477Bn and better than the £9.200Bn that the market had anticipated.

Britain’s debt to GDP ratio ticked up above the 90% mark last month as George Osbourne, the Chancellor of the Exchequer, proves a little hesitant to act on his strong debt reduction rhetoric. The debt levels however are stable and given that Britain is heading into election season it is not difficult to see why a slight shying away from tough economic decisions might occur. In fact the pace and strength of the British economic recovery to date provides for the luxury of easing up on austerity.

The latest forecast for growth in the UK’s economy comes from the Ernst & Young Item Club, this is predicting a GDP expansion of 3.1% this year which would easily place Britain at the top of the G7 growth table.

Despite the high growth scenario, it remains unlikely that the Bank of England (BoE) will move to raise interest rates this year. Inflation is not quiet at the target level yet and it’s pace of expansion appears to be slowing, this gives the Bank some leeway as the strength of the British Pound is continuing to hamper trade and a premature rate hike would only serve to compound this problem. General demand in the Eurozone is sluggish and British exporters cannot afford to be made any more uncompetitive due to an appreciating currency.

The only immediate upward pressure on interest rates in the UK comes from the runaway housing market, prices are now showing close to double digit annual growth rates and it is still unclear as to whether regulatory moves will be effective in controlling this excessive property inflation.

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