THE TAKEAWAY: UK public finances, public sector borrowing higher than expected -> Cable stunts gains intraday
Higher than expected public borrowing numbers from the UK failed to meaningfully affect the British Pound today, despite fundamental fears that the UK’s massive budget deficit may overshoot itself. Public sector net borrowing rose GBP 15.9bln in March as opposed to the expected 14.2bln. and the revised previous 9.9bln.
The public sector net borrowing figure represents the amount of new debt held by the UK government. In the long run, the government must balance the public sector account in order tosustain the economy. If the UK spends more than what it earns, it must finance this budget deficit with an increase in net borrowing.Growth in borrowing is considered currency-bearish, because budget deficits are generally detrimental to the economy.
March’s public finance figures suggest that the trend in the UK's fiscal position continues to worsen. Cableweakened intraday; however, the Pound’s overall trend remains bullish on the back of recent solid jobs data and a more hawkish outlook from the Bank of England.
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