Despite the fact that London economists had predicted that Britain’s economy would miss its targets and have a forecasted deficit of £110bn instead George Osborne has met his full year borrowing target for 2013-2014. This has meant that the UK deficit has fallen to the smallest since the beginning of the global financial crisis. Government borrowing has come in at £107.7bn it had previously been at £115.1 bn. This positive news is mainly due to a sharp fall in borrowing in March – down to £6.7bn compared to the previous year when it was £11.4bn. The encouraging figures are also apparent when the full-year borrowing is looked at as a percentage of Gross Domestic Product (GDP) which has fallen from 7.4% to 6.6% since 2012-2013. This is the lowest since 2007-08.
What has Caused it?
The optimistic financial news has emerged due to economic growth, a fall in unemployment and an increase in tax receipts into the government.
There was also a large rise in stamp duty received due to the increasing strength in the housing market, increases in income tax and VAT. All of this shows that the economy is recovering. With the increase in stamp duty showing that the housing market is once again moving; increases in VAT received reflecting an increase in consumer spending and increases in income tax received showing that there is a rise in the number of jobs.
As well as an increase in the money received in, the money going out has decreased. This is mainly due to the changes in welfare payments, i.e. the welfare cuts feeding through to the budget.
What do the Experts say?
Many experts are weighing in on this news, and although this seems to be an encouraging trend they also warn against over optimism.
Rob Wood, chief UK economist at Berenberg, said: "Government borrowing is high, but it is falling as the economic upturn boosts taxes and cuts the jobless numbers, while austerity keeps spending growth weak…Austerity still has a long way to run, but with the economy growing rapidly now and wage growth beginning to perk up there is every chance that government borrowing will fall faster than the chancellor is planning on."
David Kern, Chief Economist at the British Chambers of Commerce (BCC) said: ’The figures show that gradual progress has been made over the past year in stabilising our public finances.” He went on to warn that “bringing down our budget deficit remains a difficult task. Since the financial crisis we have seen falls in oil and gas output and weaknesses in the financial sector. These structural changes have reduced the country’s ability to generate tax revenues, and future public spending must factor in these challenges.’
It’s not all doom and gloom, The BBC reported it as a “Psychological boost”within their analysis of the news.
What Does it Mean for Graduates?
It should be taken as good news. A stronger economy will filter down to affect graduates with better job opportunities, a nicer housing market and a more stable future. The economic health of the country directly affects us and a healthier economy with a smaller deficit can only be good news.