Deficit worsens despite George Osborne's boast
Public-sector borrowing rose in November continuing a trend of deterioration
Britain's underlying fiscal deficit is continuing to grow thanks to the chronic weakness of the economy, the latest borrowing figures from the Office for National Statistics (ONS) showed yesterday.
The news is an embarrassment for the Chancellor, George Osborne, who boasted earlier this month he was successfully bringing the deficit down.
Public-sector net borrowing in the month was £17.5bn, up £1.2bn on November 2011, the ONS said. The borrowing spike – which came as an unpleasant surprise to City analysts who expected a fall – was a consequence of a rise in public spending and disappointing income tax receipts.
In every month of the financial year since March borrowing has come in higher than in the same period of 2011/12. In the financial year to date, the Government has borrowed £8.3bn more to cover day-to-day spending than it did last year. This has put the underlying deficit on an unmistakably rising trajectory.
Two other sets of data released from the ONS yesterday failed to brighten the picture. The estimate of GDP growth for the third quarter of 2012 was revised down from 1 per cent to 0.9 per cent.
The statistics agency also said that the services sector – which accounts for 77 per cent of the economy – grew by 0.1 per cent in October, which left some analysts gloomy about the prospects for the economy's performance in the fourth quarter.
"We already have plenty of evidence to suggest the economy may have contracted in the fourth quarter, said Vicky Redwood of Capital Economics. "Indeed, the UK could already be in a triple-dip."
In his Autumn Statement, the Chancellor surprised analysts by announcing that the 2012/13 deficit would be lower than in 2011/12, even excluding the impact of various one-offs such as the transfers of Royal Mail pension scheme assets and funds generated by the Bank of England's quantitative easing programme. But it subsequently emerged that this was based on the assumption of a £3.5bn windfall from the sale of the 4G phone spectrum early next year and a forecast by the Office for Budget Responsibility that government departments will underspend their annual budgets by £7.5bn.
Yesterday's borrowing figures, though, confirmed the deterioration of the underlying fiscal position. Spending rose 6.3 per cent on the same month last year and there was a 12.3 per cent fall in income-tax revenues compared with November 2011.
If departments continue to spend at the same rate for the rest of the year the OBR's forecast will be missed.
However, the watchdog reiterated yesterday it expects both tax revenues to pick up and spending to fall over the final four months of the financial year. Much depends on receipts in January, normally a bumper month for corporation and income-tax payments.
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