Borrowing rise a new blow to George Osborne's debt-cutting plans

 

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The Independent Online

The Chancellor, George Osborne, faced another blow to deficit-busting efforts yesterday with more gloom on borrowing as the UK's slide back into recession hit the Treasury's coffers.

The news overshadowed some respite for the Bank of England on inflation as its Consumer Prices Index fell to 3 per cent from 3.5 per cent in April.

The latest drop means the Bank's Governor Sir Mervyn King avoids writing his 10th open letter in a row to the Chancellor to explain the high cost of living.

The shock rise in borrowing to £13.8bn in April came after two major one-offs – a £28bn surplus from the Royal Mail's pension scheme and £2.3bn from the wrapping up of the Bank's Special Liquidity Scheme to support the banking sector – were stripped out of the figures.

The surge is nearly £5bn higher than the £9.1bn seen 12 months earlier, putting immediate pressure on efforts to hit the independent Office for Budget Responsibility's (OBR)£120bn borrowing target for the new financial year.

The big worry for the Treasury will be the sluggish, 1.3 per cent growth in tax receipts, far below the OBR's estimates for the year, as well as a 3.7 per cent rise in spending by government departments. A key barometer of business health – corporation tax takings – is down 11.5 per cent year on year.

The inflation figures were flattered by the timing of Easter – with air and sea fares lower than a year ago – as well as a high street clampdown on clothes prices.

The Bank last week said inflation would be above its 2 per cent target until the middle of next year, but encouragingly, core inflation – stripping out volatile food and energy prices – fell to a two-year low of 2.1 per cent.

Analysts said this gave rate-setters leeway to print money to aid the economic recovery if necessary.

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