Public purse shows record £9.5bn deficit

The public finances last month plunged to a record deficit for a December as the Government began to dip into its overflowing coffers ahead of a likely election.

The public finances last month plunged to a record deficit for a December as the Government began to dip into its overflowing coffers ahead of a likely election.

The UK posted a deficit of £9.5bn, worse than City forecasts, thanks to higher spending, falling tax revenues and a rise in interest debt repayments. But despite this, there was a surplus of £23.5bn for the first nine months of the financial year. This is down from £33bn in the previous month but still a record for a December.

Analysts said Gordon Brown, the Chancellor, was on track to overshoot his targets, leaving him room to cut taxes in the March budget.

Public sector net borrowing, the Treasury's preferred measure that irons out one-off payments such as mobile phone auction receipts, also rose to £2.7bn from £2.6bn. So far this fiscal year it is running a surplus of £4.1bn. Analysts said the government's forecast for a full year surplus of £10.1bn looked cautious.

Ross Walker, an economist at Royal Bank of Scotland, forecast a surplus of £18bn for the full year. "There remains ample scope for pre-election tax cuts," he said.

The Treasury said the figures were close to expectations, adding that it had forecast spending would rise and tax revenues would weaken towards the end of the year.

The detailed breakdown showed that spending by government departments is starting to pick up. Spending also rose 5 per cent between December and November. But this was still well below the 8 per cent growth that the Government had planned for. Adam Law, at Barclays Capital said this would have little impact on interest rates. "It would be fallacious and dangerous to suggest there is anything to get excited about," he said.

The arguments for an interest rate cut were boosted by a slowdown in both mortgage lending and personal borrowing from the major UK banks last month.

Homebuyers borrowed £1.67bn in December, compared with £1.97bn in the previous month, the British Bankers Association said.

The rise in credit card spending, at £154m, was the smallest since April 1999 and was especially small for a Christmas trading period.