Public finances set to miss forecasts

The public finances were shown to be in a weaker state than most observers thought when the Office for National Statistics revealed its latest figures yesterday.

October is a month that usually shows a surplus because of the timing of corporation tax payments and other factors, yet this year the Government saw a net inflow of only £1bn, against £3.5bn in the same month in 2006.

In terms of the year-to-date figures, the picture is scarcely more encouraging for the Treasury. The accumulated public sector net borrowing figure for the first seven months of the current financial year is now £24.2bn, some £6.7bn morethan the amount the Government borrowed in the sameperiod of 2006-07.

Faster-than-planned government spending and weaker tax revenues were to blame. Some analysts still expect the Government to meet its forecast in the pre-Budget report last month for total borrowing in 2007-08 of £38bn. However, even that new target is up from £30.7bn last financial year, and higher than the forecast made in Gordon Brown's last Budget in the spring for a total borrowing figure of £33.7bn.

Michael Saunders, of Citi European Economics, said: "This is the highest outturn for borrowing in April-October seen since Labour took power in 1997. The scale of the fiscal deterioration suggests that the full-year deficit is likely to overshootthe £38bn forecast in the pre-Budget report. The outturn for borrowing in 2007/08 may well be heading to around £40bn (or even higher), given recent fiscal data and the likelihood thatrevenues will suffer from thefinancial market crisis and economic slowdown."

Meanwhile the CBI's Industrial Trends Survey reported a rebound in industrial orders in November, with industrialists showing confidence about their ability to pass on cost increases to consumers, which had fallen sharply in October.