December's PSBR lower than expected

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The Independent Online
A RISE in value-added tax payments and strong privatisation receipts resulted in a lower-than-expected public sector borrowing requirement of pounds 3.43bn in December, bringing the budget deficit for the first nine months of 1992/3 to pounds 25.7bn.

The nine-month figure contrasts with the pounds 10.3bn reached in same period of 1991/2.

Analysts predict the PSBR will match or even exceed the Treasury forecast of pounds 37bn, even though this implies that the borrowing requirement will expand by around pounds 12bn in the final three months of 1992/3.

The deficit, which had been expected to widen by pounds 4bn, was flattered by VAT receipts of between pounds 750m and pounds 1bn resulting from a switch to monthly from quarterly payments by large companies ahead of the advent of the single European market.

As a result the PSBR for February, traditionally a high VAT payments month, will no longer benefit from large VAT receipts.

But the switch is expected to have a neutral impact over the financial year as a whole.

The PSBR also benefited from privatisation receipts of pounds 1.3bn due to the sale of government-held debt owed by BT and the electricity generating companies.

Excluding privatisation results the PSBR totalled pounds 32bn in the first nine months of the fiscal year, almost double the pounds 17.2bn recorded in the previous year.

Emphasising the scale of the Government's borrowing programme, the Bank of England yesterday announced an auction on 27 January of pounds 2.5bn of 8.5 per cent Treasury bonds due in 2007. Gilt-edged prices firmed slightly as a result.

Nigel Richardson, bond economist at Yamaichi International, observed: 'The markets welcomed the fact that the issue wasn't bigger.'

John Shepherd, of Warburg Securities, added: 'The PSBR figures show there will be an awful lot more gilt issues to come.

'Either the exchange rate has to come down or gilt yields have to go up.'

Commentary, page 25