Public finances meet their target

Analysts warn that public finances are likely to get worse

Public sector borrowing for the last financial year has come within the chancellor's target, but analysts have warned of more difficult times ahead.

Public sector net borrowing (PSNB) was £35.6bn in the fiscal year to 31 March 2008, figures from the Office for National Statistics have shown.

Although an increase from £30.1bn in 2006-07, it was below Alistair Darling's forecast of £36.4bn.

Analysts say a slowing economy could mean PSNB for 2008-09 exceeding target.

They point to the PSNB for March 2008 rising to £10.2bn from £7.1bn in March 2007, and the fact that an economic downturn would mean lower tax receipts for the Treasury.

'Deteriorating outlook'

"The data shows that the Chancellor met his full-year borrowing forecast for the last year but that is where the good news ends," said Paul Dales at Capital Economics.

"We think that a sharper slowdown in economic activity than the Chancellor expects will mean that borrowing overshoots Mr Darling's forecast of £43bn for 2008/09 by at least £2bn."

Fellow analyst, Global Insight economist Howard Archer agreed that the Mr Darling will struggle to keep borrowing in check this year, "given the deteriorating economic outlook".

The government is also under fire for the way it has reinterpreted its own fiscal rules.

The nationalisation of Northern Rock has meant that it will breach its self-imposed government debt ceiling of 40% of GDP.

And the "golden rule", which says that the government should only borrow to invest over the economic cycle as a whole, is also under threat.