Slow pace of deficit reduction means the Chancellor is likely to err on the side of caution at tomorrow's Autumn Statement - EY ITEM Club comments

22 November 2016

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  • October sees an improvement in the fiscal numbers…
  • …but borrowing in 2016-17 still on course to come in above OBR’s Budget forecast
  • Slow pace of deficit reduction will encourage Chancellor to take cautious approach in Autumn Statement  

Martin Beck, senior economic advisor to the EY ITEM Club, comments:

“Public sector net borrowing came in at £4.8bn in October, £1.6bn lower than the same month in 2015. October’s improved performance was largely a function of the strength of corporation tax receipts, though other revenue streams – most notably income tax and VAT – continued to underperform.

“The stronger October outturn and some favourable revisions to prior months meant that borrowing was £5.6bn lower than a year earlier over the first seven months of fiscal year 2016-17. But this still leaves the Government behind schedule in terms of achieving the OBR’s full year forecast. If this trend continues over the remaining five months of the year then borrowing would overshoot by around £11bn. In reality the situation is probably a little less bleak, as forestalling associated with the pre-announced increase in dividend tax should cause a sharp rise in self-assessment income tax receipts in the first couple of months of 2017. But even allowing for this, Public Sector Net Borrowing (PSNB) looks set to come in some way above the OBR’s full-year forecast of £55.5bn.

“Today’s figures are likely to have come too late for inclusion in the OBR’s new forecasts, which will be published alongside tomorrow’s Autumn Statement, but they do highlight the challenges facing the Chancellor. The pace of deficit reduction remains frustratingly slow so, despite a strong case for stimulus, the Chancellor is likely to err on the side of caution.”