Goldman Sachs is out with its near-term forex outlook
Investing.com -- Britain’s government borrowed £17.686 billion ($23.84 billion) in May, exceeding economists’ expectations of £17.1 billion, according to official data released Friday.
Despite the May overshoot, public borrowing for the first two months of the fiscal year remains £2.9 billion below the Office for Budget Responsibility’s (OBR) forecast.
The current budget deficit, which is critical for the Chancellor’s fiscal mandate, reached £12.8 billion in May, slightly below the OBR’s forecast of £13.0 billion.
Central government expenditure came in at £99.0 billion, lower than the OBR’s expected £99.5 billion, driven by reduced debt interest payments and spending on goods and services.
Tax receipts totaled £82.5 billion, marginally below the OBR’s £83.0 billion forecast. Income tax receipts were £0.2 billion above expectations despite a slump in payroll employment during May.
The recent rise in gilt yields since the March Spring Statement may lead the OBR to revise its debt interest payments and borrowing forecasts upward in the Autumn Budget.
Analysts at Capital Economics say the Chancellor’s £9.9 billion cushion against her fiscal mandate could be wiped out in the Autumn Budget, and they doubt her position will improve anytime soon.
Policy reversals on benefit and welfare spending, potential downward revisions to productivity forecasts, and higher borrowing costs might require tax increases of £13-23 billion later this year to maintain the current buffer.
With gilt markets sensitive to significant increases in borrowing, tax hikes appear increasingly likely as the government continues to manage its fiscal obligations.