Borrowing Falls ... Chancellor issues warning ...

Good news for the Chancellor this week. Borrowing fell once again in July, compared to prior year. In the month, the surplus was £2 billion compared to £1 billion in 2017. The year to date comparisons were even more impressive. In the first four months of the financial year, borrowing was just £12.8 billion compared to £21.3 billion last year.

VAT receipts were up by 6%, Income tax and capital gains tax receipts were up by 6%. Interest payments were down by some £2 billion. Interest receipts under the "money for nothing, gilts for free" programme [QE] were up by £2 billion.

Spending was up by less than 1% as the austerity policy continued. Social security payments were up by almost 3%. Extrapolate the four months trend over the year as a whole and borrowing could fall to £24 billion this year, compared to £39.4 billion last year. This is unlikely.

Last month we revised our forecast for the current year borrowing to £30 billion. This remains a fair forecast for the moment. Retail sales in the first four months were up by 4% in value terms. Jobs growth was up by 1%. The average earnings spread was 2.5%. The underlying numbers suggest receipts were flattered in the year to date. The momentum of lower borrowing may slow over the rest of the year.

The Chancellor warned this week, borrowing may rise by some £80 billion over the next decade. If hard Brexit becomes the reality, slower growth and rising unemployment will over shadow the outlook for truly global Britain. Should we really be worried about Brexit ...?

Your sandwiches safe in my hands ...

Dominic Raab provided an assurance this week, there would be no sandwich crisis in the event of a hard Brexit.

"So let me reassure you all that, contrary to one of the wilder claims, you will still be able to enjoy a BLT after Brexit. There are no plans to deploy the army to maintain food supplies."

Stories had been circulating in Westminster, the government planned a three month stock pile of "Bacon, Lettuce and Tomato" sandwiches delivered to Sainsbury's by the SAS if need in the event of a food crisis.

With 10,000 lorries per day delivering food from the EU to the UK some concern was inevitable. Dominic Rabb, Secretary of State for Exiting the EU had the thankless job of addressing concerns about a hard Brexit. The Government released this week the first batch of "What would happen under a hard Brexit" papers. Twenty Five of a planned eighty two in fact. It made for some difficult reading.

It now seems clear in the event of a hard Brexit, we will lose all control of regulation and product standards. Business will be tied up in the red tape and administration, we had clearly sought to avoid by leaving the EU. The Government told companies to “consider how they will submit ­customs declarations in the future. They should engage the ­services of a customs broker, freight forwarder or logistics provider to help, or alternatively secure the appropriate software and authorizations” to assist. As for standards and regulation ...

The UK would take "unilateral action" to "maintain as much continuity as possible". "We will accept the testing and safety approvals of existing medicines if they're carried out by an EU member state". We will hope the EU would do the same for us.

The UK will unilaterally recognise EU food standards and pursue equivalency arrangements on food regulation. We hope the EU will do the same for us. Defra minister George Eustice told a Lords committee his department would implement a 'mutual recognition' regime, which amounts to assuming food from the EU was safe to eat, hoping they will do the same for us. Really?

Transport secretary Chris Grayling told the BBC in March that "we will not impose checks" at the port of Dover. Let 'em drive through with illegal immigrants clinging to the differential axis presumably.

In further bad news, UK expats were warned they may not be able to access pension payments or bank accounts for that matter in EU countries. Banks were advised to open offices in Dublin or along the Danube if things get tough. Car manufacturers will be advised to relocate within the customs union as a next step.

"Britain : A 21st Century Exporting Superpower"

Liam Fox, declared this week, Britain can become a 21st Century Exporting Superpower following Brexit. Exports can be boosted to 35% of GDP if only 400,000 businesses would begin to export or export more. It isn't really clear how things will be so much easier once out of the EU.

German exports to the BRIC countries, China, India, Russia and Brazil were over four times higher than that of the UK last year. German exports to China were valued at almost $100 billion dollars compared to
less than $25 billion for the UK.  Exports to the USA were over twice the levels achieved by UK traders. It's all about capacity in the manufacturing sector. Capacity further inhibited outside of the customs union, especially in motor, aerospace and big pharma.

The clock is ticking. The difficulties are compounding. Time is running out. Taking back control, free from red tape and regulation may not be so easy after all.

Need more information on the monthly data? Check out the Monthly Round Up  on the Saturday Economist Web Site. Here we provide more detail on monthly data with some great charts and forecasts, you can copy and use at will ...

Don't Miss Our Monday Morning Markets ...

Don't forget! Monday Morning Markets is back. The update is released every Monday Morning at around 8:00am.

We look at key stock markets, bond markets, interest rates and currencies every week and monitor trends and direction in key areas.

Last week our eToro "Empires of the Cloud" jumped by 1.4%. Thanks to a great performance from Square and Twitter. Our index tracker fund was positive across the board as our predicted rally in the DOW, NASDAQ and S&P materialized. Our funds are in the black, despite a continued setback on FB and Alibaba

That's all for this week, we will be back next week, with more economics. and markets.

Have a great weekend,

John