MNI 5 Things: January Borrowing Surplus Set For Squeeze

--UK January Public Sector Finances Data Due Feb 21

     LONDON (MNI) - The UK's January Public Sector Finances Data will be

released Wednesday, when we will learn how government borrowing fared in the

tenth month of the fiscal year. The MNI median expectation, taken from a poll of

analysts, looks for a stg9.0bn borrowing surplus in January, excluding public

sector banks balance, below the outcome in January 2017.

              Jan PSNB-Ex

                   Stg bn

-------------------------

MNI Median           -9.0

Prior (Dec)  -11.6 (+2.6)

     Ahead of the release, we outline five themes for particular attention.

     -Best December Since 2000 ...(Thanks to an EU Credit).

     PSNB-Ex came in below its year-ago level again in December, coming in

stg2.5bn lower at stg2.6bn the lowest December borrowing outturn since 2000.

However, December's figures were flattered by lower government spending, and

specifically a stg1.2bn credit from the European Union (the largest in two

decades), and not a resurgent economy. The credit was linked to underperformance

of the UK economy this year with contributions linked to the size of member

state's economy versus the rest of Europe.

     -Year-To-Date Borrowing Lowest in a Decade. 

     December's result, though slightly misleading, was still enough to take YTD

borrowing to its lowest level in ten years. At stg50.0bn, cumulative borrowing

in the first nine months of the fiscal year was stg6.6bn lower than in 2016/17

-- a monthly improvement of around stg0.6bn. January is the fiscal month that

typically sees the biggest influx of receipts, with inflows of self-assessment

income tax, capital gains tax and corporation tax receipts all prominent. As

such, the size of the January surplus will go a long way towards defining

overall borrowing in 2017/18 as well as whether 2017/18 borrowing comes in under

the OBR's estimate (stg49.9bn) and the 2016/17 result (stg46.0bn). A surplus of

stg9.0bn would take the YTD borrowing balance to stg41.0bn, stg4.1bn below the

2016/17 equivalent and enough to maintain the record of the lowest YTD borrowing

balance in a decade.

     - Softer January Surplus Than Usual. 

     In January and February of 2017 the borrowing balance was boosted by

individuals bringing forward dividend and tax payments, with the aim of

side-stepping the April 2016 dividend tax hike. The unwind of this forestalling

effect will hit the surpluses delivered in the first two months of the year, to

the tune of stg5bn according to the Office for Budget Responsibility (OBR). Due

to the complex nature of the taxes in question and the element of behavioural

changes among taxpayers, estimating the size of the January surplus is not

straightforward. The MNI median looks for a stg9.0bn surplus, down stg2.6bn from

the bumper result recorded this time last year. Analysts forecasts of the

surplus range from stg7.0bn to stg10.8bn.

     - Don't Hold Your Breath for the Spring Budget. 

     January's data will be the last before Chancellor Philip Hammond's Spring

statement next month (March 13). However, the event is likely to only showcase

the OBR's updated UK economic forecasts given there will be, in the words of a

Treasury spokesman, "no red box, no official document, no spending increases and

no tax changes". Hammond decided to end the system of delivering two Budgets per

year and this will be the last Spring Budget before switching to the solitary

Autumn Budget system from next year.

     - Keep an Eye on VAT, Stamp Duty Receipts. 

     VAT receipts hit a record high stg12.272bn in December which may be

surprising given growth in retail sales volumes sunk to its worst December

outturn since 2000 (although in value terms sales were up 4.4% y/y). This may be

an indication that consumer spending sentiment may be stronger than we think, so

it's something worth watching for in January. Stamp duty receipts, meanwhile,

fell in December for the first time since legislation was introduced to abolish

stamp duty for some first-time buyers. Receipts were down 0.9% y/y and the data

on Wednesday will show whether this extended into January.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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