The U.K. logged a record £16.7 billion net budget surplus in January 2024, according to official figures released on Wednesday 21st February 2024
The Office for National Statistics noted that the country’s public finances usually run a surplus in January, unlike during other months, as receipts from annual self-assessment tax returns come in.
Combined self-assessment income and capital gains tax receipts totaled £33 billion in January, the ONS noted, down £1.8 billion from the same period of last year.
Total government tax receipts came in at a record £90.8 billion, up £2.9 billion compared to January 2023.
Government borrowing during the financial year spanning to the end of January 2024 was £96.6 billion, £3.1 billion lower than over the same 10-month period a year ago and £9.2 billion lower than the £105.8 billion previously forecast by the independent Office for Budget Responsibility.
Spinning the benefits of a tax cut scenario as Chancellor Jeremy Hunt hints at further tax cuts
The Chancellor, Jeremy Hunt, has given strong hints that he wants to cut taxes in the spring Budget.
Mr Hunt reportedly said that countries with lower taxes have more ‘dynamic, faster growing economies.‘ Didn’t Liz Truss say something like that too? But of course, she didn’t ‘cost it out’ in her mini budget apparently – but she also wanted lower taxes for growth none-the-less.
Autumn statement
In the Autumn Statement, the chancellor reduced national insurance for workers by 2% and announced tax relief for businesses. If inflation falls, followed by lower interest rates, Mr Hunt may consider he has scope for further tax cuts.
At the World Economic Forum, in Davos, Switzerland – he was also reported to have said that the: ‘direction of travel’ indicates that economies growing faster than the UK, in North America and Asia tend to have lower taxes. ‘I believe fundamentally that low-tax economies are more dynamic, more competitive and generate more money for public services like the NHS,’ he reportedly said.
It is widely expected that the chancellor will focus on income tax in the upcoming Budget due on 6th March 2024
Lower than expected government borrowing last month has increased the possibility of tax cuts in the Budget, analysts say.
UK Borrowing fell to £7.8bn in December 2023, the Office for National Statistics (ONS) indicated. Interest payments dropped sharply due to a faster than expected decline in inflation. Analysts said the latest figures could give the chancellor more wiggle room for tax cuts.
December’s borrowing figure was £8.4bn less than a year earlier, and the lowest figure for the month since 2019.
Interest payments on government debt fell to £4bn, down by £14.1bn from December 2022.
The UK economy will grow much more slowly than expected in the next two years as inflation takes longer to fall, the Office for Budget Responsibility (OBR) says.
Are we locked in a never-ending austerity cycle?
Living standards are also not expected to return to pre-pandemic levels until 2027-28, the Office for Budget Responsibility (OBR) said. It comes as the chancellor announced tax cuts and a rise in benefits in his 2023 Autumn Statement.
The OBR publishes two sets of economic forecasts a year, which are used to independently predict or guess what may happen to government finances. These are based on its best guess calculations about and are subject to ‘change’.
It’s just a forecast – so should we take any notice?
According to the OBR, the UK will grow by 0.6% in 2023 – much better than previous predications last autumn, when it calculated the economy would fall into recession and shrink.
However, it slashed its growth outlook to 0.7% in 2024 and 1.4% in 2025 – down from a previous forecast of 1.8% and 2.5%.
The OBR warned that inflation – currently 4.6% – will only fall to 2.8% by the end of 2024, before reaching the Bank of England’s 2% target in 2025. Previously it forecast inflation would easily beat the target next year.
OBR & ONS data set
These gloomy predictions put the Government on a collision course with the Bank of England and Britain’s budget watchdog as they clash over whether or not the UK economy is on the up.
Shoppers bought less food and fuel in October 2023 as they were hit by rising living costs and poor weather, according to ONS data.
The volume of products sold last month fell by 0.3% to the lowest level since February 2021 when large parts of the UK were in Covid lockdowns. Retail sales had been expected to grow in October 2023.
Demand for other goods was also lower, the ONS reported.
The CNBC/NRF Retail Monitor, which tracks card transactions, also reported a drop in consumer spending in October 2023, with retail sales, excluding autos and petrol/diesel, falling by 0.08%, and core retail, which also removes restaurants, declining by 0.03%.
The report suggested that the consumer took a spending break ahead of the holiday season, amid rising inflation, supply chain disruptions, and labour shortages.
Pay growth has outstripped inflation by the most since 2021, in a further sign that the pressure on living costs may be starting to ease.
Regular pay rose at an annual rate of 7.7% between July and September 2023, official figures show; higher than average inflation over the same three months.
But job vacancies fell for the 16th month in row, in a worrying sign that the jobs market is weakening. Between August and October 2023, the estimated number of vacancies in the UK fell to 957000, down 58000 – although the Office for National Statistics (ONS) said the total remains well above pre-pandemic levels.
Data Source: Office for National Statistics Data
UK pay outstrips inflation by highest amount for two years
The UK’s unemployment rate was largely unchanged between July to September 2023 at 4.2%, according to ONS data.
It means prices are still rising at the same rate as the previous month.
Petrol and diesel costs kept inflation up, the Office for National Statistics (ONS) says, but food and non-alcoholic drink prices fell for the first time since September 2021.
Food inflation falls the most
Milk, cheese and eggs are among the products that went down the most; the price of household appliances and airfares fell to.
In response to the latest figures, Chancellor Jeremy Hunt said, ‘inflation rarely falls in a straight line’. He pledged to stick to the government’s promise to get the main rate of inflation down to 5% by the end of the year.
Thank you for that enlightening comment, Mr Hunt. May I remind you that even if you hit the target the government set of 5% by the end of the year; inflation will still be a whopping 3% above the Bank of England (BoE) original target!
Targets! Targets! Targets!
Thank you for that enlightening comment, Mr Hunt. May I remind you that even if you hit the target the government set of 5% by the end of the year; inflation will still be a whopping 3% above the Bank of England (BoE) original target!
Come on – get your act together! You really should have prepared batter and seen this coming.
Services output was the main contributor to growth in August 2023, adding 0.4% on the month to offset a fall in production output of 0.7% and a decline in construction output by 0.5%.
This data shows early signs of a cooldown in the labour market and thus, lower inflation further down the economic road.
Bank outlook
The data and outlook for the Bank of England (BoE) suggests that Bank rate increases do not have much upside from here and will most likely remain at current levels, but for a longer period.
The UK economy returning to growth in August 2023 has re-kindled expectations that interest rates will be left unchanged again in Novemeber 2023.
The economy grew marginally by 0.2% in August following a sharp fall in July 2023.
According to the Office for National Statistics (ONS), the UK’s inflation rate dropped unexpectedly in August 2023 to its lowest level since the start of Russia’s invasion of Ukraine, which led to sharp rises in energy and food costs which were already on the rise due to the pandemic.
The Consumer Prices Index (CPI) rose by 6.7% in the 12 months to August 2023, down from 6.8% in July. The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 6.3% in the 12 months to August 2023, down from 6.4% in July.
The ONS said that the main factors behind the fall in inflation were lower prices for clothing, footwear, and second-hand cars, partly offset by higher prices for transport services and recreational goods.
UK Inflation 1989 – 2023 (ONS data)
The ONS also said that the inflation rate was still high compared with historical levels, and that it expected it to rise further in the coming months due to increases in energy bills and supply chain pressures.
Chancellor Jeremy Hunt said the news showed ‘the plan to deal with inflation is working’. Well Jeremy, your comments are encouraging – if you truly believe a 0.1% fall in inflation is ‘working‘. Where were you when the Bank of England lost control of the ‘2% inflation remit’.
‘Don’t worry – the money is being printed as we speak. Come and get your share now!’
Where were you when the excessive ‘uncontrolled’ government borrowing infected the UK’s economy? With all that ‘free’ money sloshing around the system, what did you really expect would happen..?
According to the Office for National Statistics (ONS) – Inflation fell to 6.8% in the year to July 2023, down from 7.9% in June. A reduction was anticipated by analysts, and there are signs the cost of living could be easing finally, after figures on Tuesday revealed wages rose 7.8% annually between April and June 2023. But inflation and therefore prices remain high, placing pressure on household finances.
When the rate of inflation falls, it does not always mean that prices are coming down, but that they are likely to rise less quickly. A fall in gas and electricity prices last month helped drive inflation lower. The cost of some food food items, such as milk, bread and cereals had come down, but that food prices are still some 15% higher than they were in July 2022.
Core inflation
However, according to the ONS figures core inflation a figure which strips out the price of energy, food, alcohol and tobacco, remained unchanged in July at 6.9%. With inflation still more than three times the Bank of England’s 2% target, many ‘experts’ expect the UK’s central bank to raise interest rates again in September 2023.
The Bank has steadily hiked interest rates to 5.25%, the highest level in 15 years, meaning mortgage costs have jumped dramatically, but on the flipside savings rates have increased too for the first time since the financial crisis of 2008.
Working?
The Chancellor said July’s figures on the cost of living showed the action the government had taken ‘is working’.
Comment
Well… it’s ‘working‘ in the sense it is having the desired affect to reduce inflation – (that both the government and the Bank of England were way behind on) – but it isn’t helping the economy, as interest rates climb making it more expensive for businesses and consumers to function.
But, at least wages are going up now thanks to all the strikes! This will ultimately add more inflationary pressure in the short term.
Regular pay grew by 7.8%, the highest annual growth rate since comparable records began in 2001.Inflation, which measures the pace at which prices are rising, has eased but remains relatively high at 7.9%. Thhe ONS suggested these latest figures demonstrates ‘people’s real pay is recovering‘ and that basic pay is growing at its fastest since current records began’.
However, wage growth is still not quite outstripping the pace of price rises and inflation is still high. Figures suggest that, taking into account the Consumer Prices Index (CPI) measure of inflation, average regular pay fell by 0.6%.
There are signs in the ONS’s data that the UK employment market is easing. The jobless rate rose from 4% to 4.2%, while the number of people in employment ticked lower.
Backward stats..?
The fall in employment in the three months to June and the further rise in the unemployment rate will be welcomed by the Bank of England as a sign labour market conditions are cooling. These comments from an analyst were presented as welcome news – but they are odd really when an economy needs good levels of employment (not unemployment). We live in weird times! Good news! Bad news!
The Bank of England is still generally expected by many pundits to increase its key interest rate again to 5.5% before ending the current run of rate rises.
The number of vacancies in the UK jobs market fell again, down 66,000 between May and July 2023. However, there are still more than one million vacancies.
Strike action adds to inflationary pressure
List of workers striking for higher pay
Teachers
Tube staff
Railway workers
Doctors
Nurses
NHS staff
Ambulance workers
Passport Office workers
Border control staff
Airport workers
Civil servants
University staff
Barristers
This is by no means an exhaustive list – just a sample of the demands placed on resources through strike action that impacts inflation through a period of fast wage growth.
