US budget deficit higher in May

High deficits are a major economic challenge

The US federal deficit exceeded expectations in May but the budget shortfall remains much lower than at the same stage last year.

May's deficit hit $42.8bn (£23.2bn), according to the US Treasury, compared with $35.4bn a year ago and economists' forecasts of $39bn.

The rise was due to administrative factors which saw certain government spending programmes included in May.

Improved tax revenues have helped curb the deficit so far this year.

Economic threat

In the first eight months of the budget year, the shortfall totalled $227bn, compared to $272.3bn for the same period last year.

Healthy economic growth has helped boost the nation's coffers while government spending has slowed, although it is still rising at 8%.

The US has recorded consistently high deficits in recent years, leading critics of the Bush administration to accuse it of fiscal indiscipline.

Previous deficits of $413bn in 2004 and $319bn last year were among the three highest in history in dollar terms.

Federal Reserve chairman Ben Bernanke warned in March that a stubbornly high deficit posed a major threat to future living standards.

However, most experts believe that the deficit will be trimmed significantly this year with economic output running above 4.5%.

The Congressional Budget Office has forecast an annual shortfall of about $300bn.