UK February borrowing data makes deficit goal a tough ask
Underlying improvement in February may not be enough to meet more ambitious borrowing target
Britain’s public finances showed an underlying improvement in February compared to a year earlier, but the gain may not be enough to meet a more ambitious borrowing target set out by finance minister George Osborne earlier this week.
Deficit reduction has been Mr Osborne’s central economic policy since Britain’s Conservative-led coalition came to power in 2010, when Britain’s budget gap was 11 per cent of annual economic output - one of the highest for a major economy.
On Wednesday Mr Osborne unveiled new forecasts predicting that the government will borrow £107.8 billion this year, 6.4 per cent less than in the 2012/13 financial year, compared to a 3 per cent reduction targeted in December.
Economists said the government could face a challenge meeting the new, tougher forecast from the Office for Budget Responsibility.
Data released today by the Office for National Statistics showed that borrowing for the first 11 months of the tax year stood at £99.3 billion - 4.3 per cent less than in the same period a year ago.
That puts a hefty onus on the public finances in March to make up the difference.
“For this to be achieved, borrowing in March will have to show a substantial improvement of £2.9 billion compared with last year,” said Philip Shaw, chief economist at Investec.
Figures for government borrowing in February alone create uncertainty about whether such savings can be made.
Britain’s public borrowing in February - excluding financial sector interventions and transfers from the Royal Mail pension plan and bond interest paid to the Bank of England - came to £9.311 billion, up from £9.163 billion a year before.
Economists polled by Reuters had forecast a slightly smaller £9.0 billion pounds, but markets were unmoved by the data.
However, borrowing figures in February 2013 were flattered by 2.3 billion pounds of one-off receipts from the sale of 4G mobile phone spectrum, so economists said the February 2014 figures represented an underlying improvement.
“February’s public finances figures confirm that the UK’s budget deficit is continuing to make slow downward progress,” said Jonathan Loynes, chief European economist at Capital Economics.
He said Britain could beat an official forecast for cutting the deficit to 5.5 per cent of gross domestic product next year, given signs the economy could grow by around 3 per cent.
“But the big picture is still that there is a very long way to go before the public finances are restored to full health,” said Mr Loynes.
February’s figures benefited from a carry-over of delayed payments of income tax from January, when there was a smaller-than-expected seasonal surplus.
Total borrowing between April 2013 and January 2014 was also revised down by 600 million pounds.
The opposition Labour party, which is a few points ahead in opinion polls ahead of a general election next year, said the figures showed the government was 190 billion pounds behind its original 2010 plan to balance the books.
Osborne’s budget courted voters ahead of an election in 2015 with promises of help for savers, tax breaks for manufacturers and lower levies on beer and bingo.
Today’s data showed that public sector net debt was £1.247 trillion in February, equivalent to 74.7 per cent of GDP and a record for the month of February. The government forecasts that ratio will peak at nearly 80 percent in 2015/16.
Ratings agency Fitch said yesterday that it was unlikely to restore Britain’s triple-A credit rating until the debt-to-GDP ratio was on a downward path and below its current level - something not forecast to occur until 2018/19. (Reuters)