A Budget-day borrowing blow for Chancellor George Osborne yesterday underlined the scale of his deficit-cutting task despite slightly better news on growth from his independent forecaster.
February's horrendous figures showed public borrowing hitting £15.2bn – a record for the month and nearly double the £8bn expected by the City. Borrowing for the first 11 months of the year is £110bn – still £8.9bn below last year but leaving far less margin for error on the Office for Budget Responsibility's £127bn target for the year.
The latest evidence of the Chancellor's slow fiscal repair job comes as he bids to hang on to the UK's prized AAA credit rating. The ratings agencies Moody's and Fitch have cut their outlook on the UK to "negative" in recent weeks, warning of the potential impact of the eurozone crisis and weaker growth on the pace of deficit reduction.
The OBR upgraded its UK growth forecasts marginally, to 0.8 per cent for the year, but Capital Economics' chief UK economist, Vicky Redwood, said: "The public finance figures are rather worse than the Chancellor would have hoped for."
Worryingly for the Chancellor, public spending jumped to £52.5bn in February, 8 per cent ahead of the same month last year, as departments splashed out and benefit costs soared by £1.5bn. Meanwhile tax receipts are faltering after a big drop in the income tax take.
The OBR's improved growth estimates for 2012 – albeit to a meagre 0.8 per cent – is the first upgrade of any kind by the fiscal watchdog in two years. In the 2009 Budget the then chancellor, Alistair Darling, was forecasting 3.5 per cent growth this year.