ANALYSIS:It seems unlikely that revenues in the final months of the year will make up shortfall, writes DAN O'BRIEN

YESTERDAY’S exchequer figures for July will do nothing to cheer anyone, even if they do not cause any alarm bells to ring.

While the overall deficit outcome hit the target, it was €250 million from the bull’s eye of where it should have been in the first seven months of the year. This is almost entirely the result of weaker income tax revenues.

If €250 million can no longer be considered large when compared to the gargantuan size of the overall imbalance between public spending and tax income, it is not inconsiderable when one considers that the Government is committed to making an additional €3 billion adjustment to the deficit in 2011.

It now looks increasingly unlikely that revenues will be strong enough in the final months of the year to make up for the shortfall registered thus far in 2010. Indeed, the balance of risks, if the range of indicators released recently is looked at in the round, suggests that the ultimate gap between revenue outcomes and expectations in 2010 will be even bigger than €250 million.

This is because the Government built into its budget forecasts late last year a strengthening of the recovery in the second half of this year. But the aforementioned indicators, which include retail sales figures and a timely survey of manufacturers, suggest anaemia in the recovery now rather than vigour.

If there is not a more marked uptick in momentum, then the Government will face hard choices. These could include postponing capital spending slated for later in the year and/or an adjustment in 2011 beyond the €3 billion already committed to.

This choice may have to be faced sooner rather than later. More precisely, it may have to be confronted by September, when the Government is obliged to publish its EU-harmonised General Government Budget Balance numbers for 2010 and the medium term.

These are the figures outsiders pay most attention to, including bond market participants and the European Commission. If developments in tax revenues are not credibly addressed in its revised Stability Programme, either the bond market or the Commission (possibly both) may seek to force the Government to address them.

It is worth noting that it is more than a little curious that the Department of Finance still devotes most of its energies to churning out the old-fashioned exchequer figures rather than EU-harmonised figures. Not only are the general government measures more readily comparable with other countries, it provides much wider pictures of the overall public finances.

Separately, a new data series on bank lending, also released yesterday, give a neutral picture on the state of the recovery

In brief, the Central Bank’s new numbers give some reason to believe that companies are finding it easier to borrow from the banks. By contrast, households continue to deleverage apace according to the new data. The two effects are likely to be broadly offsetting each other.