British government borrowing higher than expected in December

Tuesday 22 January 2013 15.29
Economists said George Osborne could miss his revised annual target
Economists said George Osborne could miss his revised annual target

Britain's government borrowed slightly more than expected in December as the economy continued to struggle, thwarting efforts to erase a large budget deficit and adding to pressure on the country's top credit rating.

Just over a month after official borrowing forecasts for 2012-13 were revised, economists said the figures showed the Finance Minister George Osborne was almost certain to miss his new annual target, further endangering a deficit-cutting drive that is already running two years behind.

The government's preferred measure of public sector borrowing rose to £15.42 billion (€18.38bn) in the month from £14.85bn (€17.7bn) a year earlier, just above a forecast of £15.2bn (€18.12bn).

It was mainly due to a poor growth in revenues, which will bolster criticism that the government has cut too hard and too fast in the public sector to allow the economy to grow.

However there were also worrying signs that, with unemployment rising, spending is growing faster than expected, by 5.4% on the year compared with a 3.6% rise in revenues.

There are a number of windfalls likely to flow into state coffers before the financial year ends in early April, but the most-used measure of borrowing is already £2bn (€2.38bn) short of the 2012-13 target set in December.

"We're still trying to work out how the government believes they're going to meet their borrowing requirement this year," said Tom Vosa from National Australia Bank in London.

"They still seem to be some way off from the target announced in (December)."

The Office of Budget Responsibility, a budget watchdog, said after the data it was still hopeful that the target it set in early December could be met.

It hopes for £3.5bn (€4.17bn) from the sale of 4G mobile phone frequencies and another £11.5bn (€13.7bn) from the transfer of coupon payments on gilts (bonds) bought by the Bank of England back to the finance ministry.

However while tax receipts in coming months will be bolstered by income tax returns, the OBR's hopes of a faster rise in revenues than seen so far are set against growing speculation that the economy may be slipping back into recession.

Deutsche Bank economist George Buckley said his calculations showed the deficit would overshoot by £22.5bn (€26.83bn) to reach £131bn (€156.22bn) if fiscal performance did not improve in the final three months.