Falling tax revenues propelled Britain's budget deficit to a record high for the month in June, putting the government under further pressure today to spell out a credible debt-reduction strategy.
The Office for National Statistics said the public sector posted a net cash requirement of just under £19 billion last month. That was slightly lower than analysts had forecast but the worst reading since records began in 1984.
Public sector net borrowing came in at just over £13 billion, also the highest reading for a month of June on record and taking public sector net debt to 56.6 per cent of gross domestic product (GDP), the highest since records began in 1974.
The head of Britain's debt agency said earlier today demand for the government's debt remained healthy - an assertion backed up by a £4 billion auction of seven-year bonds that drew orders worth 1.7 times the amount on offer.
Even so, some economists are concerned that investors will lose faith unless Britain shows it is committed to cutting its borrowing and that may be difficult with an election less than a year away.
"June's public finance figures do absolutely nothing to alter the big picture that they are in a dreadful state,” said Vicky Redwood at Capital Economics.
Rating agency Standard & Poor's downgraded the outlook for Britain's rating to “negative” from “stable” in May, citing concerns the debt burden could rise to 100 per cent of GDP, well above government forecasts.
Gordon Brown's Labour government, which is trailing in opinion polls, has justified the decision to raise spending to help the economy through the recession. The government has pledged to rein in spending once a recovery had taken hold, halving the deficit over a five-year period.
The International Monetary Fund, however, has called for swifter action and warned that international investors will not give Britain the benefit of the doubt for ever.
“Today's figures are in line with our Budget forecasts," a government spokesman said today.
“They reflect the impact of the global financial crisis on tax receipts as well as the action we are taking to support the economy right now and invest to benefit from the recovery.”
Reuters
