UK Government Borrowing Higher than Expected – FTSE Takes a Dive

Data today showed that public borrowing for H1of fiscal year 2024 came in higher than official forecasts. The higher debt underscores the challenges the finance minister faces to implement the budget.

Government borrowing between April and September rose to £79.6 billion. Surpassing the Office for Budget Responsibility’s (OBR) projection by nearly £7 billion. In September, borrowing mounted to £16.6 billion, which is £1.5 billion higher than the OBR’s forecast.

The extent of the borrowing is highlighted by the fact that this September was the third highest level of borrowing since records began in 1993. The FTSE didn’t receive the news very well, and the index is down 0.64% so far today.

Economists expect that Reeves, the finance minister, will be obligated to raise taxes in the budget she presents October 30. The only other solution to the situation would be to cut government spending.

That type of action seems unlikely given the social policies of the current Labour government. Reeves has stated that she wants to increase government spending to improve infrastructure and services.

She also added that taxes will have to go up, although she committed to not raising the main rates of taxation. The likely revenue increases will come from national insurance contributions, capital gains, and inheritance tax.

While employer groups have raised the concern that higher taxation will stifle the government’s target of doubling economic growth in the country.

Technical View

The day chart above for the FTSE shows a market that is still in a sideways trend. Prices are above the Ichimoku cloud, indicating a bullish trend. However, the range is limited since September 19, between 8,367 (green line) and 8,203 (bottom line blue area).

The market attempted to break out of the tighter range of the blue area and failed. The market found the resistance of 8,367 and retreated back to the cloud. This move confirms the sideways range.

Further confirmation of the lack of momentum comes from the RSI. Which has been hovering around the level of 50 for most of the time since September 09. Today’s candle has found support on the top side of the cloud.

Further support will come within the cloud and at the bottom of the blue area, around 8,203. To the upside the market will meet resistance at 8,367 (green line), which it failed to break already twice.