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WEEKLY ECONOMIC REVIEW

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A key UK economic data publication this week will be last month's PSBR figure. January is traditionally a month for...
A key UK economic data publication this week will be last month's PSBR figure. January is traditionally a month for public sector debt repayment, and Ken Clarke will be hoping for a big number this time round.

At the moment the 96/97 PSBR target of£26.5bn looks achievable, but a lot depends on the size of January's tax receipts and the ability to control public sector spending in the couple of months to year end.

So far this year, net departmental outlays are still some 3.25% higher than at the same stage last year against the Chancellor's full year expectations of only 2.25%.

Given the typical end-of -year spending 'splurge', which could prove harder to contain in an election year, there remains a real danger of a spending overshoot.

Although January is a key month for tax receipts, specifically corporation and income taxes, there are reasons why the chancellor might also be disappointed on this front.

Corporation tax receipts will be subdued by slower GDP growth in the 1995/96 financial year, (tax from this year was due last month). GDP growth slowed from 3.5% in the first quarter of 1995 to 2.1% in the first quarter of 1996.

In addition, January income tax revenues may be effected by the move to self-assessment which has pushed the due date to the end of the month.

And the implications of a PSBR overshoot this year?

Whichever political party wins the forthcoming general election, more fiscal tightening is required to put the public finances back onto a sustainable path. However, both of the main political parties have pledged to leave the main personal tax rates unchanged, and it is likely that corporation taxes will raised to make up the revenue shortfall, a move that would be taken negatively by the UK equity market.

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