Britain goes deeper into the red

Brown keeps smiling as Treasury shrugs off record UK deficit

UK government borrowing has hit its highest monthly level since records began, according to official figures.

The public sector net cash requirement (PSNCR) rocketed to £13bn in December, up from £11.6bn in the previous year.

This shows the biggest monthly PSNCR since records started in 1984, the Office for National Statistics said.

Accelerating public spending and lower than hoped for tax receipts are proving a headache for Chancellor Gordon Brown as he battles to balance the budget.

Debt forecasts up

Recently, Gordon Brown was forced to raise his public sector deficit forecast for the fiscal year to £37bn, up from £27bn figure predicted in his Budget speech in April.

And the government has already accumulated a public debt of £36.1bn so far during the current financial year, the ONS revealed.

However, January and February are traditionally months when some public debts are repaid, so the £37bn forecast could still be met.

The chancellor has been forced to borrow more money to back Labour's pledge to pour billions of pounds into ailing public services, particularly schools and hospitals.

'Pretty grim'

Publicly, the Mr Brown has remained upbeat about his ability to meet his "golden rule" of balancing the budget over the economic cycle, but some economists may opt to doubt the certainty of the "prudent" chancellor.

Michael Hume, economist at Lehman Brothers, described the PSNB figures as "pretty grim".

"Although the December figures look OK, the November revisions are pretty drastic and not good news for the chancellor at all.

"We're getting to that point now where the chancellor is going to come under pressure from outside opinion that his fiscal rules are not going to be met."

Shadow Chancellor Oliver Letwin said there was "no excuse for borrowing at this level".

"As the OECD said yesterday, and the IMF said last Christmas, he has two choices: either restrain the growth of public spending or admit he is going to have to raise taxes," Mr Letwin said.

Income due

On the surface the figures may be alarming, but the Treasury warned City economists not to read too much into December's data.

"There is nothing here to suggest we should take a different view to that in the pre-Budget report," the Reuters news agency reported an unnamed Treasury source as saying.

December is always the worst month of the year as the government is obliged to pay half the interest on its debt and tax receipts are usually lower in the run up to Christmas.

But the situation changes at the beginning of the year as self-assessment returns flow in and corporations pay the bulk of their taxes.

Then in February, delayed tax returns also boost the Treasury's coffers.