Rising deficit puts Britain at risk of debt goal miss

Britain's budget deficit widened to the biggest on record for any August, data showed on Friday, a day after the central bank chief said missing its debt goal was acceptable for the government. Public sector net borrowing excluding financial sector interventions rose to 14.410 billion pounds from 14.365 billion in August 2011 as Britain's recession hit company tax receipts and drove up benefit payments.
That was the highest for any August since records began in January 1993, although slightly below economists' forecast in a Reuters poll for 15.0 billion pounds. Finance minister George Osborne, who has made reducing the deficit a central plank of his policies, may soon face a tough choice between cutting spending further or abandoning his goal of ensuring that the debt-to-GDP ratio starts falling by 2015.
The lack of growth and the rising debt pile have increased the tension within the coalition of Conservatives and Liberal Democrats, with some Conservatives urging more cuts to welfare. Late on Thursday, Bank of England Governor Mervyn King - a firm supporter of the government's efforts to cut the budget gap - said missing the 2015 debt goal would be acceptable if the reason was weakness in the economy.
"We heard from Mervyn King last night they are going to bust the debt target," BNP economist David Tinsley said. The International Monetary Fund (IMF) predicted back in July that Britain's debt-to-GDP ratio will not fall by 2015. Nevertheless, the fund suggested the government ease back on austerity if the economy failed to recover by early 2013.
The fallout from the financial crisis left Britain with one of the biggest budget deficits of all major economies and its public sector net debt-to-GDP ratio has climbed to around 66 percent in August from some 36 percent before the crisis. Friday's data showed that government receipts rose 1.8 percent on the year in August, while current spending grew 2.5 percent. Within that, corporation tax inflows fell 2.1 percent on the year, while social benefit payments rose 4.9 percent.