UK public borrowing hits red at £12.5b

The UK’s public finances are set to show a plunge into the red of around £12.5 billion during August.

The month is usually a demanding one because corporation tax receipts do not tend to feature strongly, meaning total borrowing for the first five months of the financial year is set to push beyond £57 billion.

The latest figures from the Office for National Statistics (ONS) come a month before Chancellor George Osborne sets out his austerity plans in the comprehensive spending review on October 20.

Capital Economics forecast £13 billion of public borrowing in August, slightly above the £12.5 billion consensus in the City and broadly similar to the figure recorded a year earlier.

It said “improvements are still fairly small and will do nothing to lessen the size or timing of the fiscal squeeze”.

Howard Archer, chief economist at IHS Global Insight, said he expects that the economy’s return to growth in the fourth quarter of last year, and a decline in unemployment benefit claims, which limits the rise in public expenditure, will help the year-on-year performance.

Stripping out the impact of banking sector interventions, the independent Office for Budget Responsibility (OBR) is predicting borrowing of £149 billion for 2010/11 overall – down from £155 billion previously.

Philip Shaw, analyst with Investec, who has predicted public borrowing in August of £13.1 billion, said at the current rate of improvement, borrowing for the year as a whole will be £147 billion – beating the OBR expectations.

But he warned: “The wider evidence does show the public finances are heading towards repair, but there is a very long way to go before they reach a position which is anywhere near sustainable.”

Borrowing rose by a further £3.8 billion in July, which marked an improvement on the £6.1 billion seen a year earlier. This brought total borrowing in the four months of the financial year to £44.9 billion.
Source: Press Association