Borrowing falls ...
January surplus was highest on record, according to the latest data from the Office for National Statistics. January is the month of biggest surplus for the Treasury. Receipts are boosted by payments of self assessed income tax, capital gains tax and corporation tax.
This financial year 2018/19, the January surplus was a record £14.9 billion, an increase of almost £6 billion compared to prior year. For the year as a whole, borrowing was £21.2 billion. That's down by almost half compared to the same period last year.
In the last financial year, total borrowing was £42 billion. In November the OBR projected a deficit of £25 billion for the current year. With just two months to go, the Chancellor is on track to reduce borrowing to around £22 billion. That's a modest 1% of GDP, compared to almost 10% of GDP at peak of cycle.
Last week we talked of the strong growth in retail sales. VAT revenues are higher in the year to date, up by 5% on prior year. Later we report on the strength of the jobs market and the boost to earnings. In January, income tax and capital gains taxes were £31.4 up by 11% on prior year.
Total revenues to the exchequer are up by 4% so far this year. Total spending was up by just 2%. Strong receipts reflect strong growth in the economy. Spending controls, with some counter cyclical kickers, explain the small increase in spending.
The strong results for the Chancellor, do not suggest an economy which is about to keel over any time soon. The big overhang of course is Brexit. Self inflicted wounds are the most harmful. Time to make the deal and let the good times roll ...
Earnings rise ...
Good news from the job market this week. The unemployment rate in December was just 4%. The number out of work was 1.36 million down by 100,000 compared to prior year.
The number in work was 32.6 million, up by 440,000 compared to December 2017. There were an estimated 844,000 on zero hours contracts in their main job, down by almost 60,000 over the same period.
More people in work, earning more money. Whole economy earnings were up by 3.4% in the three months to December. Private sector pay was up by 3.5%. Public sector pay was 2.8%. Construction pay was up by 4.3%, a measure of jobs compression in the sector.
The good news for Brexiteers, workers from the EU are returning home. The number of EU workers fell by 60,000 to 2.3 million by end of year. Not so good news for those taking back control of our borders, numbers from Africa and Asia increased to plug the gap. As with all things, be careful what you wish for.
Wages are rising ahead of inflation Real income growth in the first quarter will b e1.5%. Recruitment difficulties are increasing. The number of vacancies in the economy increased to 870,000. That is a remarkable number when we consider the peak at previous cycle was just 700,000.
Recruitment difficulties are particularly high among leisure, health and social workers. They also appear to be acute in the financial and insurance sectors. A sector deemed to be vulnerable to Artificial Intelligence.
A jobs market which is overheating with wage growth ahead of inflation. This is not a sign of an economy which is about to keel over any time soon. Brexit remains a real threat to the UK and European economy. Self inflicted wounds are the most harmful.
Brexit together with Trump trade wars and the Tariff Man's penchant for punitive action, the clear and present danger to healthy world growth. It is time to make the deals and let the good times roll ...
Make the deal ...
Signs the White House is ready to make the deal with China this week. The President needs the deal. Faced with a legal challenge over the national emergency and the Mueller challenge over a more local matter, Trump needs a deal with China on trade and with North Korea on peace, to maintain momentum into the second half of his "first term".
The trade policy is not working, the US trade deficit is increasing. Tariffs are creating difficulties for US farmers and manufacturers alike.
Trump may claim, that China is paying "billions" in tariffs to the U.S. Treasury. The reality is the tariffs are paid by importers into the US not by the government of China. Importers pass on the increase in prices, to trade customers and ultimately consumers. It is the American consumer, footing the bill for Tariff Man's tantrums as domestic prices rise.
There is little or no substitution effect from the trade tariffs. The billions raised have been offset by billions spent. China has stopped buying American soybeans, pigs, cotton and other produce from Uncle Sam. Revenues from the tariffs have been offset by payments the government has had to make to farmers to compensate.
In Europe, car manufactures are threatened by a 25% tariff on imports to the USA. The EU will respond with restrictions on Caterpillar construction equipment and Levi jeans. The President cannot afford a trade war with Europe. It cannot afford a trade war with China for much longer ...
It really is time, to make the deal and let the good times roll ... before irreparable damage is done ...
That's all for this week, have a great week-end. We will be back with more news and updates next week!
In just a few weeks time, I shall be speaking on life after Brexit at the Northern Business Expo. Just click on the link ... the code word is Brexit to secure your FREE tickets ...
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for FREE weekly updates on the UK and World Economy.
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