Surprise as public borrowing rises

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The Independent Online

Chancellor George Osborne was dealt an unexpected pre-Budget blow today as Government borrowing last month came in higher than City expectations.

Public sector net borrowing for February, excluding financial interventions such as bank bailouts, was £11.8 billion, compared to £9.5 billion a year earlier, the Office for National Statistics (ONS) said.

This was nearly double the £6.9 billion forecast by economists and a record for the month of February.

Borrowing for the year to date now stands at £123.5 billion after the Government recorded its weakest tax haul since January last year.

The worse-than-expected performance will cast doubt on hopes that the Government is on course to beat its £148.5 billion target for the financial year.

Economists had been earmarking a potential £10 billion windfall for the Chancellor ahead of today's borrowing figures, although experts warned that next year's tough borrowing target of £116 billion would give the Government little room for manoeuvre in the Budget.

Jonathan Loynes, chief European economist at Capital Economics, said the figures, combined with higher-than-expected inflation of 4.4% revealed today, gave a "grim Budget backdrop" though total borrowing for the year should still undershoot the Government target.

He said: "February's public finances and consumer prices numbers present a distinctly unfavourable backdrop to tomorrow's Budget."

He went on: "Barring a disaster in March, this still points to an undershoot of the full year forecast of £148.5 billion, but that undershoot may be closer to £5 billion than the £10 billion to £15 billion previously hoped.2

Total tax receipts fell by nearly 1% in February to £43.1 billion, the ONS said, the first decrease since January last year.

Meanwhile, Government spending increased by nearly 5% to £49.3 billion. Within this figure, interest paid on borrowing increased by 11.2% to £4 billion.

Shadow chief secretary to the Treasury Angela Eagle said: "One month's figures should always be treated with caution. But the news that borrowing was higher last month than a year ago underlines what we have been warning for months.

"It's harder to get the deficit down if cuts which go too far and too fast cause confidence to fall, unemployment to rise again, and growth to slow right down. It's time George Osborne understood that."