UK public sector borrowing overshoots forecasts

LONDON — UK public sector borrowing rose more than expected in June, to 14.4 billion pounds ($22.6 billion), according to official data released Friday that raise doubts over the government’s ability to meet its deficit targets.

By (AP)

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Published: Fri 20 Jul 2012, 4:04 PM

Last updated: Tue 7 Apr 2015, 11:48 AM

The disappointing news came a day after the International Monetary Fund said the government may have to ease up on its deficit-cutting program if the economy doesn’t return to strong growth.

The Office for National Statistics said borrowing was 500 million pounds more than in the same month a year earlier, while the market expected it to be 500 million pounds less.

Spending on social benefits such as unemployment rose by 3 percent in the period, while income tax collections were a bit lower, the statistics agency said.

“It is clear that the recession is leading to a worsening of the UK’s underlying fiscal position and raises more question marks over the effectiveness of the government’s austerity measures,” said James Knightley, economist at ING Bank.

Vicky Redwood at Capital Economics estimated that if the trend continues the government will overshoot its full year borrowing target of 120 billion pounds by about 20 billion pounds.

Britain’s economy shrank in the fourth quarter and the first quarter, putting it in recession, technically defined as two consecutive quarters of economic contraction. Next week, the ONS will release its first estimate of second-quarter GDP which will show whether the recession continued through the first half of the year.

The nation got a mixed bag of economic news this week with consumer price inflation in June dropping to 2.4 percent from 2.8 percent a month earlier and unemployment easing a tenth of a point to 8.1 percent, while retail sales disappointed with feeble a 0.1 percent increase.

The IMF, which projects Britain’s economy to grow by 0.2 percent this year, on Thursday called on the Bank of England to consider cutting its base interest rate below the current 0.5 percent and for the government to step up public investment.

With the British economy essentially flat since the end of 2010, the IMF said there is a risk of permanent damage to the nation’s productive capacity.

“We expect the economy to grow only modestly, slowed by weak demand due to low confidence, the uncertainty due to tensions in the euro area, tight credit conditions,” and lower spending from the government, businesses and households as they cut debt, said Ajai Chopra, deputy director of the IMF’s European Department.

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