Page last updated at 13:55 GMT, Thursday, 18 March 2010

Government borrowing less than forecast

Alistair Darling
Alistair Darling has pledged to cut the budget deficit by half

UK government borrowing could be less than forecast this financial year after better-than-expected figures for February and revised January data.

The UK government borrowed £12.4bn in February, less than economists had expected, official figures have shown.

The figure for January was also revised sharply downwards, to £43m from £4.3bn.

Borrowing in the current financial year has now reached £131.9bn, but analysts say the full-year total may be less than the government's £178bn forecast.

Until recently, most analysts thought the government's borrowing forecast was too optimistic.

The Office for National Statistics said that the overall effect of the latest revisions to historical data for the year had cut overall borrowing for 2009/10 by £2.9bn.

Despite the revisions and February's better-than-expected figure, government borrowing is still running at record highs for the year, partly due to reduced tax receipts because of slow economic growth.

'Timely boost'

The borrowing figure for February was not as bad as some had feared, partly because of the rise in VAT at the beginning of this year.

The government is also paying out slightly less in benefits, because unemployment is falling.

"February's public finances figures have provided [Chancellor] Alistair Darling with a very timely boost ahead of next Wednesday's Budget," said Jonathan Loynes at Capital Economics.

ANALYSIS
Nils Blythe, BBC business correspondent

These figures give a mixed picture. At first glance, they show a record level of borrowing for the month of February and are a painful reminder of how rapidly the UK government's debt is rising. But look a little more closely and there are some slightly more encouraging signs.

Tax receipts are up by £1.5bn on February last year. And with one month left in the tax year, the cumulative borrowing total has reached £132bn. That is a colossal sum. But even allowing for a hefty borrowing requirement in March, it seems that the total will come in well under the forecast for the tax year which the Treasury made in December.

None of this is likely to have Alistair Darling rewriting next week's Budget. He still has to convince the financial markets that Labour is serious about cutting the deficit. But if borrowing this year is a little lower than projected, it does give the Chancellor a little more room to manoeuvre.

"The figures leave a total deficit for the first 11 months of the year of £132bn, suggesting that Mr Darling may now hit or even undershoot his full-year forecast."

Howard Archer at IHS Global Insight agreed: "Mr Darling could significantly undershoot the £178bn public sector borrowing requirement that he forecast for 2009/2010 in last December's pre-Budget report."

Accountancy firm PricewaterhouseCoopers estimated that the budget deficit for the financial year would be £173bn, £5bn less than the government forecast.

Although the UK's overall level of debt is similar to other major economies, it has increased its borrowing during the downturn at a much faster rate than its competitors.

Chancellor Alistair Darling has pledged to halve the budget deficit in percentage terms over the next four years, but argues that making cuts now could harm the UK's recovery from recession.

On Wednesday, the European Union published a report saying that the government's plans to cut the deficit are not ambitious enough.

EU rules say government deficits must be below 3% of GDP, but the UK's deficit is expected to hit 12.6% of GDP this year.

The Conservatives also argue that cuts need to be made more quickly.

Burgeoning debt levels have also led to concerns in recent months that the UK could lose its AAA credit rating - reserved for the very safest borrowers.

However, earlier this week, Moody's agency said the UK's top rating was secure.



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