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UK Autumn Budget 2017: Reduced headroom – Lloyds Bank

UK’s improved outturns in recent public finance data, most notably higher tax receipts, leave projected net borrowing for FY2017/18 £8.4bn lower than expected in the Spring Budget; however, the cumulative borrowing requirement over the subsequent 4 years is revised higher by over £37bn, explains Nikesh Sawjani, Research Analyst at Lloyds Bank.

Key Quotes

“However, on a like-for-like basis (adjusted for the reclassification of English housing associations and other ONS changes), borrowing for FY2017/18 is £5.6bn lower, and cumulative borrowing over the coming 4 years around £53bn higher.”

“OBR growth projections were revised lower over the forecast horizon, largely due to downgrades in expectations around productivity growth. In particular, GDP growth for 2020 is pushed down to 1.3% from 1.9% in the Spring Budget.”

“The near-term pace of fiscal tightening is slower largely due to increases in spending. However, the fiscal headwinds strengthen again in FY2020/21.”

“The Chancellor’s fiscal mandate leaves him scope for some additional structural borrowing. However, his headroom has been substantially reduced to around 0.7% of GDP (around £14.8bn).”

“Relative to the Spring Budget, the CGNCR over the 4 years to FY 2021/22 is cumulatively raised by £55bn; with the gross financing requirement £58bn higher over the equivalent period.”

“A £5.0bn reduction in planned funding from National Savings more than offset a £4.1bn reduction in the CGNCR. As a result, planned gilt issuance for FY2017/18 has been increased by a modest £0.9bn to £115.1bn with the intended reduction in the T-bill stock of £9.5bn left unchanged.”

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