The UK's sovereign borrowing debt pile rose above £1 trillion for the first time ever in December, official figures showed yesterday. Net debt, excluding financial interventions, reached £1,003.9bn, equal to 64.2 per cent of GDP.
The £1trn mark was breached despite the fact that public borrowing in December came in at £13.7bn, below analysts' expectations of £14.9bn. The month's borrowing was also £2.2bn below the levels of last December. Total borrowing for the current 2011/12 financial year now stands at £103.3bn, leaving the Government on course to cut the deficit to the Office for Budget Responsibility's target of £127bn, and possibly undershoot it.
But some economists warned that a return to recession could yet throw the Treasury's deficit reduction strategy off course. Today's estimate of GDP growth for the fourth quarter of 2011 by the Office for National Statistics (ONS) is expected to show a slowdown in economic activity, maybe even a contraction. "Borrowing is likely to be much harder to bring down in the coming months," said Vicky Redwood of Capital Economics. "We would not bank on the underlying trend in borrowing continuing to improve as much as seen recently".
Some analysts also suggested that December's figures might have been temporarily inflated by strong VAT revenues and the Government's bank levy. "The January figures will be crucial in assessing whether the full-year target will be met," said Nida Ali, economic adviser to the Ernst & Young Item Club. "The year-on-year figures will no longer be flattered by the change in the VAT rate, while we will also be able to see the degree to which the 2011 slowdown hit corporation tax receipts."
The ONS figures showed that weaker spending growth has been the main factor bringing borrowing down. But tax receipts growth has also accelerated in recent months. The Government said that the size of the UK's sovereign debt pile was a reflection of the overspending of the previous Labour government. "That our national debt has reached more than £1trn simply shows the unsustainable level of spending this country built up over the past few years, and shows why it is critical for our nation's future that we deal decisively with the deficit," said a Treasury spokesman.
Rachel Reeves, shadow Chief Secretary to the Treasury, pointed out that the Government has already admitted it will borrow considerably more over the present Parliament than the Chancellor originally intended when he set out his emergency Budget in June 2010. "The Government is only on course for borrowing targets that are already a staggering £158bn off track, meaning David Cameron and George Osborne's promise to balance the books by 2015 now lies in tatters," she said.
The decent performance of the UK's public borrowing figures, despite the weakening of business surveys and labour market indicators in recent months, has been something of surprise to economists. "One possible explanation for this discrepancy is that nominal growth has remained strong, even as real growth has weakened," said Kevin Daly of Goldman Sachs.