21 February 2024
If you are covering the latest UK public sector finances data, please see the following comment from Lindsay James, investment strategist at Quilter Investors:
“This morning’s public sector finances data provides the final set of borrowing figures prior to the spring budget on 6 March, which is looking increasingly likely to be the last for Chancellor Jeremy Hunt.
“The Chancellor will be pleased to receive a modest boost, with earlier receipts having been revised upward. This has led the Office for Budget Responsibility to cut its forecast for the total borrowed in the financial year-to-January 2024 from £105.8bn to £96.6bn, a gain of £9.2bn, providing a small boost ahead of the budget. However, the outlook for public finances remains weak. The OBR reported that the debt target is more likely to be met than missed, but only put a 56% probability on debt falling in 2028/2029, the fifth year of the forecast, in its November update. Fiscal headroom at this point was just £13bn.
“Since November, RPI has fallen from 5.3% to 4.9% on a 12-month basis. Index-linked gilts, which account for around a quarter of government debt issuance, have interest payments linked to RPI, as opposed to CPI. This has seen interest payable on index-linked gilts decline significantly since January 2023, but it is a small increase on last month’s interest bill.
“With recent UK by-election results suggesting that the Labour party continues to have the advantage as we head towards the general election, Hunt will be under pressure to offer tax cuts. However, with his hands largely tied by the state of the nation’s finances, investors must be realistic about the prospects for the extent of this, or prepare for more savage cuts to the UK’s already under-strain public services.”
