Britain’s public finances deteriorated much less than feared during the first six months of the current tax year, giving Chancellor George Osborne some hope of meeting his budget goal even as the state of the economy remains weak.
It’s still an overshoot compared to the plans, but it certainly makes life a bit easier
The key measure of public sector net borrowing used in official forecasts was £2.6 billion higher than a year earlier for the April-September period, compared to an overshoot of £10.6 billion previously estim-ated for April-August, the Office for National Statistics said.
“This is much, much better than they would have thought only a month ago,” said Brian Hilliard, economist at Société Générale. “It’s still an overshoot compared to the plans, but it certainly makes their life a bit easier.”
Until the release of September’s data, the government had seemed on track for a big overshoot of its 2012-13 goal to reduce public sector net borrowing to £120 billion, as tax revenues in a recession-hit economy had failed to keep pace with the rate of government spending.
Public sector net borrowing, excluding the transfer of Royal Mail pension assets, stands at £65.1 billion for the first six months of the tax year, compared to £62.4 billion at the same point in 2011.
Economists expect the next six months to be more supportive for the public finances, as the economy is strongly forecast to come out of recession.
September’s data – which incorporated big revisions to the April-August period – showed that the Government’s spending had risen by just 2.1 per cent, compared to provisions for a three per cent rise for the year as a whole.
Borrowing data for September alone were also better than markets had expected.
Public sector net borrowing excluding financial sector interventions – the Government’s preferred measure – fell to £12.809 billion from £13.501 billion in September 2011, its lowest September reading since 2008, the ONS said. This was below economists’ average forecast in a Reuters poll for £13.5 billion.
Eliminating Britain’s structural budget deficit lies at the heart of the political programme of the coalition of Conservatives and Liberal Democrats, but an initial aim of achieving this by the next election in 2015 has receded to 2017.
The opposition Labour Party has urged slower deficit reduction, saying Osborne’s approach is self-defeating because it acts as a disproportionate drag on growth.
Osborne will announce the new budget forecasts on December 5, and the Inter-national Monetary Fund and many other economists expect the forecasts to show he is likely to miss a secondary goal of putting public sector net debt as a share of national income on a downward path by 2015.
Net debt totalled £1.065 trillion – or 67.9 per cent of GDP – in September, up from 63.6 per cent of GDP a year earlier.