UK public finances see first July surplus since 2002 – as it happened

Nick Fletcher

from on 2017-08-22 13:12 (#2ZXXE)

2.12pm BST

On a busy day, UK public finances showed a surprise surplus of 184m in July, compared to forecasts of a 1bn deficit. The number was boosted by higher than expected tax receipts.

Meanwhile the latest CBI industrial trends survey brought positive news on manufacturing orders and exports.

1.29pm BST

Despite the surprise surplus in July, the UK's public finances will take time to sort out, says Larry Elliott:

The government was in the happy - and unusual - position of being in the black in July. To the surprise of the City, tax receipts were higher than public spending. Not by much, but a surplus is still a surplus even if in the context of a 1.8tn economy it is small change.

This, though, was a classic case of one swallow not making a summer. For a start, the deficit in the first four months of the financial year - a much better guide to the trend than a single month's figures - was higher this year than last.

1.09pm BST

at nearly a0.92. We're one hawkish ECB message and one rubbish bit of UK econ data away from a new record low in trade weighted sterling.

12.09pm BST

Here's Lord Macpherson - who on Monday described QE as "like heroin" - on the public finances:

Good to see budget in surplus if only for one month. But 23% rise in debt interest bill in year to date a reminder UK not out of woods.

12.03pm BST

Brexit concerns are outweighing the positive public finance figures as far as the pound is concerned, says Connor Campbell, financial analyst at Spreadex:

The first July surplus meant little to the pound this Tuesday, which wilted in the face of a resurgent dollar.

With little news on the key US fronts - North Korea, the status of economic advisor Gary Cohn - the greenback saw no reason to not to rebound, climbing half a percent against both the pound and the euro.

11.45am BST

Back with the UK public finances, and Howard Archer, chief economic advisor to the EY Item Club, says they could give chancellor Philip Hammond some leeaway in his forthcoming budget :

A welcome summer break for the chancellor as the public finances saw the first July surplus since 2002.

Specifically, there was a marginal repayment of 184m on public sector net borrowing excluding public sector banks (PSNBex) in July. This compared to a shortfall of 308m in July 2016.

11.36am BST

More on the pound. Fawad Razaqzada, technical analyst at Forex.com, said:

Sentiment towards the British pound remains negative and so if the dollar were to stage a more meaningful comeback then the GBP/USD would be the one to watch as it could drop heavily.

GBPUSD at a 40 day low after breaking below recent range. Approaching the key 1.2811 support level pic.twitter.com/5arquSepQV

11.29am BST

Manufacturers expect strong growth in the next three months after a pick up in orders in August, according to the CBI's latest industrial trends survey.

The survey showed 30% of manufacturers reported order books above normal, with 17% saying they were below normal. The balance of +13% was higher than the +10% level seen in July and above the long run average of -14%.

Output growth remained strong and broad based and is expected to remain so over the next quarter. #CBI_ITS https://t.co/m53aToSWoQ pic.twitter.com/hb5GrDjw3f

There are further signs that exporters are feeling the benefit from the lower pound in this month's figures, and output growth is expected to power on over the coming quarter.

After a brief pause last month, expectations for selling prices have rebounded, indicating that the squeeze on consumers is set to persist. We expect CPI (Consumer Price Index) to top out at around 3% towards the end of this year and remain close to that level during 2018, as the effect of the weak pound continues to feed through.

11.15am BST

Here's our story on the UK public finances. Richard Partington writes:

The government ran the first July budget surplus in more than a decade last month, as Britain's public finances recorded an unexpected leap back into the black with help from an increase in self-assessed tax payments.

Public sector net borrowing last month, excluding the nationalised banks, was in surplus by 184m, the first surplus in that month since 2002, the Office for National Statistics (ONS) said on Tuesday. City economists had expected the government to record a 1bn deficit.

10.59am BST

BREAKING:

The Pensions Regulator has announced it will prosecute Dominic Chappell over its investigation into BHS. The full statement from the regulator reads:

The Pensions Regulator (TPR) is to prosecute Dominic Chappell for failing to provide information and documents it requested during its investigation into the sale of BHS.

Mr Chappell was the director and majority shareholder of Retail Acquisitions Ltd at the time that the company purchased BHS.

10.37am BST

Here's Bloomberg's graphic on the day's fall in the pound so far:

Pound declines as uncertainties linger about post-#Brexit trade https://t.co/e6Pt8nTRUR via @anoojad pic.twitter.com/7r3lALLDzs

10.36am BST

The UK's net borrowing for the year to March 2017 has been revised lower again, the latest ONS figures show.

It decreased by 27bn to 45.1bn compared with the previous financial year, the lowest level of borrowing since the year to March 2008.

10.29am BST

Back to the UK public finances and a good sign for the chancellor:

If pattern of first 4 months of 2017/18 sustained, #UK public borrowing would come in at 49.2 bn - well below 58.3 bn seen in March budget

10.19am BST

Over in Germany, the monthly economic sentiment index has come in below expectations.

The ZEW Institute said there was a "strong decrease in expectations" as the index fell from 17.5 in July to 10 in August, worse than the figure of 15 that analysts had been expecting. The figure is well below the long term average of 23.8 points. ZEW president professor Achim Wambach said:

The significant decrease of the ZEW economic sentiment indicator reflects the high degree of nervousness over the future path of growth in Germany. Both weaker than expected German exports as well as the widening scandal in the German automobile sector in particular have helped contribute to this situation. Overall, the economic outlook still remains relatively stable at a fairly high level.

The German ZEW index remains at elevated levels, however German investors are concerned about the future, the expectations fell to 9-mth low

10.13am BST

The better than expected UK public sector finances have done little for the pound, at least as far as the dollar is concerned. It is now down 0.4% at $1.2847.

But it is down just 0.01% against the euro at a1.0915, as the single currency comes under pressure ahead of the Jackson Hole meeting of central bankers later this week.

#EURUSD is lower today as scepticism enters the market that the ECB's Mario Draghi will say anything to boost the euro at #JacksonHole

10.10am BST

Boost for #Chancellor as #UK #public #finances see first Jul surplus since 2002; repayment of 184 on PSNBEx lifted by #income #tax receipts

10.07am BST

Here's what's driven the change in UK public sector borrowing so far this financial year. pic.twitter.com/d46wPMtsax

9.57am BST

This chart shows the monthly as well as the cumulative borrowing figures:

9.44am BST

The receipts from self-assessed income tax, which increased by 0.8bn to 8.0bn compared with July 2016, represented the highest level of July self-assessed receipts on record (records began in 1999).

9.34am BST

BREAKING NEWS:

Britain has seen the first July surplus since 2002, defying expectations of another deficit.

UK Public Finances: receipts from self-assessed Income Tax increased by 0.8 billion to 8.0 billion, compared with July 2016

9.04am BST

On BHP, analyst Nicholas Hyett at Hargreaves Lansdown said:

The headline news today is BHP's decision to exit onshore oil & gas in the US. Coming after pressure from activist investor Elliott International to spin off the entire US oil & gas business, the move is likely to be seen as a capitulation by the board, which had previously argued that the division formed a core part of the group's operations.

However while that volte face may attract headlines, management's strategy elsewhere seems to be going smoothly and delivering results.

8.58am BST

Back with the stock market, and BHP Billiton is a positive story for the day.

The mining group's shares are up 3% after it reported a jump in profits from $1.2bn to $6.7bn and confirmed that it planned to dispose of its underperforming US shale oil and gas business after pressure from activist investors.

8.52am BST

The latest grocery market share figures are out, and it is a moment to savour. Sarah Butler reports:

Lidl has overtaken Waitrose to become the UK's seventh largest grocer as increasingly cash-strapped shoppers turn to the discounters.

The German discount chain reached a new market share high of 5.2% as sales rose 18.9% in the 12 weeks to 13 August - making it the UK's fastest-growing grocer, according to the latest market share data from analysts Kantar Worldpanel.

8.47am BST

Provident Financial continues to slide, now down 60%. This means it has lost around 1.5bn so far today.

8.36am BST

The pound continues to slip back, down 0.12% to a new eight-year low of a1.0903 against the euro.

Against the dollar, sterling is 0.33% lower at 1.2856. Connor Campbell, financial analyst at Spreadex, said:

Sterling dipped against both the dollar and the euro after the bell...The currency could be helped out, however, by the July's public sector net borrowing figures, which is expected to see a tax receipt-boosted improvement on June's 6.9bn deficit.

8.28am BST

Provident Financial shares are now down 53%. Neil Wilson, senior market analyst at ETX Capital, said:

Hedge funds that built up short positions in Provident Financial made the right call after another, much bigger, warning has rattled investors and sunk the stock. Provident shares, already down 45% since May, tumbled another 43% on the open, on course for one of the biggest ever one-day falls for a FTSE 100 stock.

A catastrophic share price drop in a subprime lender - it's like the last ten years never happened. Is this a Northern Rock moment? Probably not - this is more about management failings than a market-wide issue: rivals are taking market share.

8.15am BST

As expected, European investors are in a brighter mood.

Despite the collapse in Provident Financial - now down 45% - the FTSE 100 is up 0.6%. Germany's Dax has added 0.8%, France's Cac has climbed 0.5% and Spain's Ibex is up 0.7%.

8.06am BST

Unsurprisingly, Provident Financial shares have tanked, falling 44% in early trading.

The company, which joined the FTSE 100 in December 2015, is the biggest loser in the leading index.

7.56am BST

The chief executive of Provident Financial. Peter Crook, is leaving after the UK lender issued its second profit warning in two months and said it would not pay a dividend this year as well as cancelling a previously promised payout.

It also announced its Vanquis Bank was being investigated by the Financial Conduct Authority over its repayment option plan. It said:

In view of the substantial deterioration in the trading performance of the home credit business, together with the uncertainty created by the FCA's investigation at Vanquis Bank, the board has determined that the group must protect its capital base and financial flexibility by withdrawing the interim dividend declared on 25 July 2017 and indicate that a full year dividend is unlikely.

The company has been struggling to reorganise its door-to-door subprime lending business, warning in June that its profit would fall as it struggles to switch from using self-employed debt collection agents to employees on its payroll.

Provident Financial, which provides credit to people who do not meet the loan criteria of mainstream banks, billed the reorganisation as a way to create a more efficient and effective home credit business. But it has found it harder than expected to recruit agents.

While Provident is down nearly 40% year-to-date, we expect ongoing substantial losses in the share price, and would not be buyers at any price. While the share correction was making us warm to Provident, this quadruple whammy (another profit warning, no dividend, FCA investigation and CEO departure) lead us to now believe that the shares are not investible until greater clarity is received, which may not be until next year at the earliest.

The FCA is also investigating the group's ROP product (Provident's version of PPI) and should they have to repay all of the premiums as the banks have done it could question the viability of the group.

7.41am BST

Not much in the way of corporate news, but we do have figures from the UK housebuilder Persimmon. My colleague Julia Kollewe reports:

Persimmon, one of Britain's biggest housebuilders, says it has fared better than expected since last year's Brexit vote, and is looking forward to a good autumn sales season. It posted a 30% rise in profit before tax to 457.4m in the first six months of the year.

Through the second half of 2016, the group experienced stronger market conditions than expected post the EU referendum on 23 June 2016, particularly through the traditionally slower summer weeks. Against these stronger comparatives, customer interest over the last seven weeks from 1 July has remained robust and our average weekly private sales rate per site was 2% ahead of the same period last year.

A very strong, sector-leading performance from Persimmon in the first half, delivering operating margin growth of 380 basis points to 27.6%. In our view, Help to Buy is acting as a bulletproof vest for the new-build sector allowing it to ride above the challenges faced by the secondhand market, with Persimmon continuing to balance the markets appetite more new homes with investors' desires for higher cash returns.

7.38am BST

After a pretty gloomy day for European markets on Monday - in keeping with the weather - the prospects for today are looking a little brighter.

A slight recovery on Wall Street - helped by further weakness in the dollar - has given a bit of a lift to sentiment. In Asia the Hang Seng has climbed 1% although the Nikkei is virtually unchanged, down 0.05%. Europe is expected to adopt the positive trend:

Our European opening calls:$FTSE 7346 up 27
$DAX 12101 up 35
$CAC 5098 up 11$IBEX 10384 up 24$MIB 21772 up 19

7.31am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

A slightly busier day today after a relatively quiet Monday, with UK public finances the main focus. The July figure is expected to show an improvement on the previous month's number, which showed the government borrowing a higher-than-expected 6.9bn. Helped by tax receipts, last month's rise in borrowing is expected to be just 1bn. Economists at RBC said:

July is a seasonally strong month for government tax receipts as corporation tax instalments are paid as well as a second wave of self-assessment liabilities being settled by individuals.

Therefore, the cumulative deficit for 2017-18 is only expected to expand by 1bn (PSNB ex banking groups measure) to a total of just over 27bn. The full-year target for the deficit is 58.3bn. Revisions to the target are likely in the Budget later in the year.

The public finance figures should show that borrowing fell a little on the year in July... Although the economy slowed in the first quarter, corporate profitability has remained strong.

An extremely positive number in July boosted confidence in the manufacturing sector, and showed output growing at its fastest rate since the mid 1990s. August is expected to show a slight slowdown to 8 from 10 in July, but nonetheless is expected to largely sustain the positive trend seen a month ago..

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