The latest public borrowing figures showed the Government remains on course to reduce the deficit over this financial year, but analysts have also warned that they underline the scale of the fiscal challenge still facing George Osborne.
The deficit was £9.3bn last month, according to the Office for National Statistics. That was £100m up on the £9.2bn borrowed in February 2013 and slightly higher than economists’ expectations. However, last February’s figures were flattered by receipts from the 4G spectrum auction and many analysts said that the Chancellor remains on track to bring the 2013-14 deficit in at around £108bn, down from £115bn in 2012-13. That would mean full-year public borrowing equivalent to 6.6 per cent of GDP. “Underlying receipts were up on the year,” noted John Bulford of Oxford Economics.
The fiscal deficit to date is £99.3bn, excluding one-offs, versus £103.8bn at the same stage last year. However, some cautioned that for the Office for Budget Responsibility’s (OBR’s) £108bn target to be hit, borrowing in the final month of the fiscal year, March, would need to be just £8.7bn. In March 2013 the deficit was £11.4bn. “In the context of recent history, that is likely to be a bit of a stretch” said Sam Hill of RBC Capital Markets. The annual deficit peaked at £157bn during the recession of five years ago, equivalent to 11 per cent of GDP. When the Chancellor took office in 2010, he planned to reduce borrowing to £60bn this financial year, but he was blown off course by the protracted weakness of the economy.
Jonathan Loynes of the Capital Economics consultancy said public borrowing in 2014-15 could come in better than expected by the OBR if growth turned out stronger. However, he also warned against any complacency. “The big picture is still that there is a very long way to go before the public finances are restored to full health,” said Mr Loynes.