UK record borrowing puts Brown target at risk

Britain's budget deficit hit a record high in May as government expenditure surged, raising doubts over whether Chancellor of the Exchequer Gordon Brown will meet his borrowing forecast for the year. The Office for National Statistics said public sector net borrowing (PSNB) stood at 8.735 billion pounds last month.
That was the highest monthly total since comparable records began in April 1993 and compared with a forecast of 7.0 billion pounds.
That took the deficit in the first two months of the fiscal year, only slightly higher on a year ago, but analysts said there was a risk that Brown could overshoot his full-year forecast of 31.6 billion pounds if economic growth slowed.
"Taking the two months together we have got a deficit that is broadly what we had for the first two months of the last financial year," said Alan Clarke, economist at BNP Paribas.
"But the difference is that last year's deficit is somewhat higher than what Gordon Brown is going for this year, so he does have a bit of a mountain to climb to reach his target."
The Treasury was unperturbed, pointing out that expenditure growth had been boosted by a change in the timing of payouts of education grants.
"Central government spending in May was higher than last year - in large part because of a boost in education. But with spending growth over the first two months controlled at just 4.9 percent - lower than forecast in the Budget - we continue to meet our fiscal rules," a spokesman said.
Brown has two self-imposed fiscal rules for the public finances - that the government only borrows to invest over the economic cyle and that overall debt is kept at a prudent and sustainable level.
A number of analysts have accused him in recent months of being in danger of breaking the first of these rules and say taxes will have to rise in order to short up the public finances.
Meanwhile, the public sector net cash requirement, which is not smoothed out on an accruals basis, also came in higher than expected but was nowhere near a record high.
The ONS said it stood at 5.189 billion pounds in May compared with 3.229 billion pounds a year earlier.
Within that, VAT receipts were actually 1.8 percent down than a year earlier, in perhaps another sign of waning demand on the high street.