Talking Points
- Borrowing drops on the month but yearly figure continues to overshoot
- UK Chancellor Hammond may have limited room to move at Wednesday’s Autumn Statement
- Sterling on the sidelines as traders wait for tomorrow’s more important event.
A better-than-expected set of public sector borrowing numbers may give UK Chancellor of the Exchequer Philip Hammond a touch more wiggle room at tomorrow’s Autumn Statement (AS). Public sector net borrowing excluding public sector banks (PSNB ex) was £4.3 billion in October, below the £6.4 billion in October 2015 and the consensus, £6.0 billion, according to data from the Office for National Statistics.
While October’s figures show that the UK economy is still holding up well, despite Brexit worries, PSNB ex is expected to overshoot its March Budget target of £55.5 billion by around £12-13 billion in the 2016/17 financial year. In addition, the country’s finances will also be impacted by higher inflation costs and reduced tax receipts as UK economic growth cools. The recent rise in Gilt yields will also have a negative impact on the UK’s balance sheet, with higher yields resulting in higher interest payments.
Chart 1: UK 10-year Gilt Yield (November 2015 to November 2016)
Keeping the figures released today in mind, Chancellor Hammond may have to tread carefully at tomorrow’s Autumn Statement if he is to build financial credibility. And UK Prime Minister Theresa May will also want to boost her domestic standing ahead of a couple of difficult years after the UK triggers Article 50 by the end of March to begin the Brexit process.
Speaking at the Confederation of British Industry Monday, the Prime Minister said that in Wednesday’s mini-Budget, the Chancellor would “lay out an agenda that is ambitious for business and ambitious for Britain,” while bringing the country’s debt down.
Chart 2: GBP/USD 30-minute Chart (November 17 to 22, 2016)
While today’s data had no real effect on Sterling, which traded little changed on the release as traders wait for Wednesday’s AS. The Autumn Statement will commence at 12:30 GMT Wednesday. Thereafter, look for liquidity conditions to start to drop off as traders prepare for the US holidays.
Read more: British Pound Bounces from Lows as UK’s Hammond Readies Autumn Statement
--- Written by Nick Cawley, Analyst
To contact Nick, email him at Nicholas.cawley@ig.com
