Public sector finances going from bad to worse with every successive month – ITEM Club

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s public sector finances figures:

  • The public sector finances seem to be going from bad to worse with every successive month
  • The government is on course for a massive overshoot of the OBR's borrowing forecast
  • An improvement in the growth performance in H2 may help to make up some lost ground but significant risks remain

“Yet another discouraging release for the public finances, which seem to be going from bad to worse with every successive month. Part of the increase in July's borrowing can be attributed to a fall in corporation tax receipts but, for the most part, the increase in borrowing is because of overall weakness in the domestic economy.

“The jump in government spending and decline in revenues is a genuine cause for concern. If this trend continues in the coming months, the government will be on course for a massive overshoot of the OBR's borrowing forecast, which has the deficit falling by £3bn in 2012/13. On the current budget measure, the deficit is already running over £11bn ahead of 2011/12 in just four months. As a result, even though there are three months to go before the OBR's next forecast, it’s looking like they will need to make some pretty hefty upward revisions to the projections for the deficit.

“We are optimistic that the growth performance will improve over the second half of the year, which could help to make up some of the lost ground. But on the flip side the economy must still navigate its way through a number of headwinds that could threaten an even worse outturn.”