Britain posted its biggest February budget deficit on record last month, as rising unemployment and a shrinking economy drove tax receipts down 10 percent on the year, official figures showed on Thursday. Public sector net borrowing stood at 8.991 billion pounds ($12.8 billion) in February, more than 8 times higher than a year ago and the total deficit for the tax year to date rose to its highest since comparable records began in 1993.
Cumulative borrowing for the fiscal year is now a record 75.2 billion pounds, more than three times the level for the same point last year. The depth of the recession was shown clearly in March manufacturing figures from the Confederation of British Industry on Thursday, which showed the worst order books since January 1992, with the balance at -58.
With only heavy-spending March left to go in Britains seasonally erratic budget year, finance minister Alistair Darlings 12-month forecast of 78 billion pounds looks set to be overshot by a very wide margin. "The fiscal outlook is pretty awful and it is going to take a long, long time to repair it," said Ross Walker, economist at RBS. "We are heading for a 10-billion-pound-plus overshoot relative to the November forecasts." Analysts said Darling would also have to revise up his borrowing totals for next year given the slowdown in the economy, raising the prospect of even more gilt issuance. In November, Darling predicted that the budget deficit for the new fiscal year starting in April would total 118 billion pounds, or some 8 percent of GDP.
The economys total debt has now risen to a record 49.0 percent of annual output following the multi-billion-pound bank bailouts. Excluding these, net debt stood at 40.7 percent of GDP, its highest level since June 1998. "The global economic downturn is affecting all countries and that includes the UK economy and as a consequence public finances in the UK," Prime Minister Gordon Browns official spokesman told reporters. "We remain committed to ensuring that we have sound public finances," he added.
The bigger budget deficit this fiscal year was driven mostly by higher spending, including a 7.7 percent rise in benefits payments and a 63 percent rise in investment.
Tax revenues are down 3.1 percent for the year to date compared to the same time last year, and the shortfall looks to be widening with February revenues just under 10 percent lower than the same month a year ago. Falls were recorded in revenue from value-added tax, which has suffered from weaker consumer demand and Decembers 2.5 percentage point cut in the rate, corporation tax on company profits and national insurance, a tax on employment income.
February jobless data showed the biggest one-month jump in benefit claims since at least 1971. The internationally comparable ILO unemployment measure rose past 2 million in the 3 months to January to 6.5 percent of the workforce.
Darling will almost certainly have to revise his borrowing forecasts in the budget next month given that the economy has shrunk much faster than expected, and may also ramp up government spending to combat the recession. That raises the prospect of even higher gilt issuance in 2009/10 than the record 147.9 billion pounds pencilled in by the Debt Management Office on Wednesday. "Theres more borrowing to come. Fortunately, we have got a great big buyer of UK government debt at the moment, thats the Bank of England," said Alan Clarke, economist at BNP Paribas.
Gilt prices have shot up in the last few weeks after the central bank said it would embark on a 75 billion pound asset-buying programme focused on gilts to raise the money supply and boost demand. The BoE said on Thursday that it would also start buying corporate bonds under this programme from March 25, and the US Federal Reserve said on Wednesday that it would buy $300 billion of Treasuries under a similar programme.
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