Boost but borrowing to stay high

Updated: 
HM TreasuryBritain's threadbare finances will be underlined by figures which are forecast to show net Government borrowing remained stubbornly high at £117 billion in the latest financial year.

Public sector net borrowing is expected to narrowly undershoot official forecasts for £120.9 billion in the year to the end of March, and below the £121 billion net borrowing a year earlier, figures from the Office for National Statistics (ONS) are expected to show.


Borrowing in March is forecast to fall to £15.5 billion from £16.7 billion a year earlier, once distortions such as bank bailouts are stripped out, as Government departments slash or defer spending.

The independent Office For Budget Responsibility (OBR) last month blamed weaker tax receipts and disruption to North Sea oil production for lifting its deficit forecast by £1 billion to £120.9 billion for the year to the end of March.

It expects the weak tax bill to halt Chancellor George Osborne's attempts to slash the deficit in the new 2013-14 financial year, before falling sharply the following year.

The OBR's underlying deficit forecast strips out the distorting effects of transferring Royal Mail pension assets to the public sector, plus a boost from the Bank of England's quantitative easing scheme.

IHS Global Insight economist Howard Archer said that while slightly better economic activity is expected to give a slender boost to last month's borrowing figure, "the economy is still weak and any improvement in tax receipts are likely to have been limited".

Capital Economics reckons a "big departmental underspend" and the fact that spending has been pushed into the next financial year will drive March net borrowing lower to £15 billion.

Ratings agency Fitch last week stripped the UK of its coveted AAA debt rating, citing higher-than-previously-forecast budget deficits and debt. The agency, which followed Moody's in downgrading the UK, warned the slower pace of deficit reduction means the next government will have to make "substantial spending reductions and/or tax increases" if public debt is to be cut. Fitch does not expect the deficit to fall below £100 billion or 6% of GDP until at least 2015.

The OBR sees £120 billion of net public sector borrowing in the new 2013-14 financial year, far worse than its previous £112 billion forecast, but falling to £108 billion in 2014-15.

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