Britain reports record public deficit ahead of cuts

LONDON — Britain’s public deficit hit a record high level last month, official data showed on Wednesday, as the government prepared to unveil massive spending cuts to cut the country’s debt pile.

By (AFP)

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Published: Wed 20 Oct 2010, 5:41 PM

Last updated: Mon 6 Apr 2015, 11:43 AM

State borrowing hit a record for September, although the coalition government remains on course to meet its net borrowing target of 149 billion pounds (169 billion euros, 234 billion dollars) for 2010/2011, figures showed.

Britain is not facing a Greek-style bailout but its recovery from recession is far from secure, leaving critics to suggest that the government’s vast cost cutting programme risks sending the country back into a downturn.

Sovereign debt markets are watching with signs of impatience at how governments plan to correct their public finances, and governments are aware that they need to avert any loss of confidence in the quality of their bonds.

The public sector net borrowing requirement (PSNBR) jumped to 16.2 billion pounds last month — a record for September — the Office for National Statistics (ONS) said in a statement.

That compared with borrowing of 15.5 billion pounds in September 2009. Analysts had forecast a rise to only 15.7 billion pounds according to a survey by Dow Jones Newswires.

Britain’s government is being forced to borrow massively as the recent recession slashed tax revenues and as the taxpayer was forced to rescue banks left on the brink of collapse by the global financial crisis.

The country suffered a record net borrowing of 154.7 billion pounds in 2009/2010, which has led Prime Minister David Cameron’s Conservative-Liberal Democrat government to plan massive cuts to government budgets.

Finance minister “George Osborne may still be able to meet his target of 149 billion pounds in 2010/11, although much will depend on how well economic growth holds up over the rest of the financial year,” said Howard Archer, economist at consultancy group IHS Global Insight.

“If the current rate of overall improvement was replicated over the whole fiscal year, the PSNBR would come in at 148 billion pounds,” he said following Wednesday’s data.

Cameron’s coalition wants to cut spending by 83 billion pounds by 2014-15, and Wednesday’s review will reveal exactly where the axe will fall.

Chancellor of the Exchequer Osborne is expected to say his plans, which will cut departmental spending by an average of 25 percent, will map out “a hard road to a better Britain,” according to reports.

The International Monetary Fund has strongly backed the plans for an aggressive reduction of Britain’s record high public deficit, describing swift measures to curtail state spending as an “essential” weapon in reducing debt.

Business leaders have also backed the cost-cutting programme but the opposition Labour party and trade unions argue that cuts that are too steep risk creating a double-dip recession.

And minutes from the Bank of England’s last monetary policy meeting, published on Wednesday, raised expectations that the central bank will soon pump billions of pounds of new money into the economy to aid recovery.

Minutes of the October rates meeting showed that one member of the Bank’s nine-strong Monetary Policy Committee — Adam Posen — called for a 50 billion-pound hike in the so-called Quantitative Easing programme (QE).

A three-way split emerged as policymaker Andrew Sentance called for a quarter-point rate hike to record low British interest rates to calm inflation.

The remaining seven members called for no change to either rates, which stand at 0.50 percent, or QE.

The British pound was meanwhile under pressure on Wednesday following the minutes and ahead of the spending cuts announcement.

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