Public sector borrowing falls to £18.1bn

Chancellor George Osborne inched closer to meeting his deficit reduction targets today despite mounting fears over the strength of the economy.

Public sector borrowing, excluding financial interventions such as bank bailouts, fell to £18.1 billion in November, which is £2.3 billion lower than the previous year, and below the City's expectations of £19.7 billion.

However, this was tempered after borrowing in the previous seven months of the Government's financial year was revised upwards by £1.9 billion as a result of fresh data from local councils.

The fall in borrowing in November, which was driven by higher tax receipts amid the new levy on banks and the increase in VAT to 20%, leaves the Government broadly on course to meet the full-year borrowing target of £127 billion set by the Office for Budget Responsibility.

But there are fears that the Government's deficit reduction plans could yet be derailed amid rising unemployment and predictions that the UK's economy is on the brink of another recession.

This threatens to reduce the Government's tax income and saddle it with higher benefits bills.

The importance of the Government hitting its borrowing target was outlined by rating agency Moody's last night, which confirmed the UK's cherished AAA credit rating but that warned the Government's austerity measures needed to stay on course for it to retain it.

The Government's independent tax and spending watchdog last month increased its full-year borrowing target by £5 billion after it lowered its forecasts for economic growth.

Net borrowing in the financial year to date is now at £88.3 billion, which is £10.4 billion lower than the previous year.

Despite the progress being made, the Government's debt rose to a fresh record of £977.1 billion, which is 62.8% of GDP.

A Treasury spokesman said: "Today's figures show that the Government is making good progress on deficit reduction, with borrowing between April and November over £10 billion lower than over the same period last year.

"These figures demonstrate the coalition Government's unwavering commitment to dealing with the debts it inherited, despite the economic uncertainty in the eurozone and the heightened turbulence in global financial markets."

The figures revealed that the Government's tax haul in the month rose 7.1%, whereas its spending rose 0.8% as its austerity measures increasingly kick in.

November marked the third month in a row that Government borrowing has been lower than the previous year.

Howard Archer, chief economist at IHS Global Insight, said: "The public finances saw clear improvement in November compared to a year earlier, which is pleasing news for the Government.

"However, it seems inevitable that the public finances will be increasingly pressurised over the coming months by muted economic activity eating into tax revenues and pushing up unemployment benefit claims.

"While the November public finance data will be largely well received by the Government, there is still a very real danger that the Chancellor will before long face the difficult decision of accepting further slippage in his fiscal targets or imposing more fiscal tightening on a struggling economy."

David Kern, chief economist at the British Chambers of Commerce, expects the Bank of England to print more money under its quantitative easing scheme early in the new year to boost the growth of the UK economy and help keep the deficit reduction measures on track.

But he also urged the Government to introduce "significant policies to support growth", including a more aggressive reduction in red tape and "the earliest possible introduction of credit easing measures to improve the flow of lending to viable businesses".

PA