UK public finances are improving with government borrowing in the first three months of the current fiscal year (April-June) declining by nearly 20% compared to the same period last year. What's more, the June deficit was the smallest in seven years for that period, mainly due to increased tax revenues from personal incomes and corporate profits. As a result, Chancellor Osborne now aims to bring down the budget deficit in the current fiscal year to GBP 69.5bn (3.7% of GDP), a reduction compared to the previous target of GBP 75.3bn (4% of GDP) set in March.



In early July, the Conservative government presented a new 2015 budget which included a softening of fiscal tightening compared to the budget outlined before the elections. For example, the GBP 12bn cut from the welfare budget will now be carried out over four years instead of just two. As a result, the target date by when the government plans to reach a budget surplus is set back by a year to 2019/2020. Going forward, austerity measures will be softened and so the negative impact on economic growth will be less than previously expected.