Wednesday, November 21, 2012
Public borrowing - a little disappointing
Posted by David Smith at 12:30 PM
Category: Thoughts and responses

October's public borrowing figures, 8.6 billion for public sector net borrowing compared with 5.9 billion a year earlier, were disappointing. However, downward revisions to earlier months meant that the underlying overshoot so far this fiscal year - 5 billion - was not as bad as it could have been.

The big picture is that public sector net borrowing is heading for a modest overshoot compared with last year, mainly because of weak tax revenues (particularly corporate tax revenues, which were down 9% on a year earlier). Given that that 2011-12 borrowing figure came in 4.6 billion below Office for Budget Responsibility projections, that is disappointing but not disastrous. More here.

Meanwhile, the Bank of England's monetary policy committee, appeared to rule out any cut in Bank Rate: "The Committee also discussed the likely effectiveness of reducing Bank Rate to below 0.5%. Over the past few months, Bank staff had consulted with the FSA and the Building Societies Association on the possible consequences. In the light of that, the Committee had re-examined in detail the desirability of such an option. While it would be beneficial for some existing borrowers, there were concerns that a cut in Bank Rate might prove counterproductive for aggregate demand as a whole. Staff analysis had concluded that a further cut in Bank Rate would be likely to cause a reduction in the profitability of some lenders, especially building societies, because of the prevalence of loans with interest terms contractually or closely linked to Bank Rate. That would weaken their balance sheets and they might have to respond by increasing other loan rates or restricting lending. Viewed against the backdrop of the Funding for Lending Scheme (FLS), and the potential for building societies to play a material role in increasing lending, the Committee judged that it was unlikely to wish to reduce Bank Rate in the foreseeable future."

There was one vote for more quantitative easing, from David Miles. The MPC also said it would review its tactics once the existing portfolio of gilts began to mature in March 2013. More here.