The Debate: After interest on QE gilts boosted UK’s £11.4bn January surplus, do the figures lack credibility?


Nida Ali

The public sector finances demonstrate the problems caused by the statistical fudges of the past couple of years – like the transfer of coupon interest that the Bank of England has earned from buying gilts under its programme of quantitative easing. It’s difficult to decipher the underlying trends. It appears that the state of the public finances is worse than the government had hoped for, and there is virtually no chance that borrowing will be lower this year on a like-for-like basis. Further, the Office for National Statistics has put a ceiling of £9.1bn on the amount of cash that can be transferred from the Bank of England to the government this year, meaning that the reduction in borrowing caused by the transfers will be £5bn less than the Office for Budgetary Responsibility (OBR) has forecast. Therefore, the government is on course to miss the OBR’s borrowing forecast by a distance of almost £11bn.

Nida Ali is an economic adviser to the Ernst & Young ITEM Club.


Robert Wood

The latest public sector finances figures show a surplus of £11.4bn in January, and include the first transfer of accumulated interest on the Bank of England’s gilt holdings of £3.8bn. Excluding this, the underlying surplus was £7.6bn – £1.2bn better than in January 2012. But the transfer of coupon payments is not fundamentally that big a deal – it’s just a transfer of cash from one part of the public sector (Bank of England) to another (the Treasury). It’s more important politically, since the chancellor has used the transfers to disguise the government’s borrowing trajectory. He cannot hide the fact that deficit reduction has gone into reverse. Borrowing is now likely to overshoot the chancellor’s forecasts. So expect a repeat of George Osborne’s Autumn Statement performance at next month’s Budget – growth down and deficits up.

Robert Wood is an economist at Berenberg Bank.