UK’s Public Finances In Disarray And Triple Top For Oil?

It’s been a busy morning in the markets since my first publish but it is definitely worth writing about what is going on at the moment.

Today’s numbers take the scale of the collapse in UK public finances to a whole new level. The PSNB registered an 8bn deficit in the month, far worse than the expected 0.6bn borrowing requirement, which itself was a dreadful forecast for one of the two main tax take months of the year (July has seen an average 4.6bn surplus on the PSNB over the past five years). A detailed look at the numbers shows just how deep the damage runs, with a record 15% fall in receipts compared to a year ago, including a 38% fall in corporation tax receipts, a 34% fall in VAT, and a 15% decline in income tax. On the other side of the coin, spending leapt by 7.5% as benefit commitments soared.

Now on occasion, there are big differences between the accruals based PSNB and the cash based CGNCR, but not this time - a 13bn surplus in Jul 08 on the measure of public finances that generates Gilt supply has become a 2bn deficit a year later, a 15bn deterioration that takes the year to date difference compared to 2008 to 39bn after four months. Even adjusting for the 37bn bank bailout borrowing last year, we are now 22bn adrift on a full year extrapolation, and while still far too early to be sure, the chances of a material increase in the 220bn financing requirement for the full year now look worryingly high. These numbers are nothing short of appalling, and it is surprising the market has not reacted far more negatively to them.

Then of course there is Oil. Oil is looking to test good resistance at the 73.30 level - so far we have had a number of failures up here and another one will signal a very good top for oil and should open up a sell-off back towards $60. Considering the way markets have been correlated of late then very good chance it takes CAD NOK AUD currencies with it if it heads lower.

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