U.K. Posts Record September Deficit on Spending Gain
Chancellor of the Exchequer George Osborne
Simon Dawson/Bloomberg
The figures come hours before Chancellor of the Exchequer George Osborne, seen here, is due to detail the deepest spending cuts in living memory in a statement to Parliament.
The figures come hours before Chancellor of the Exchequer George Osborne, seen here, is due to detail the deepest spending cuts in living memory in a statement to Parliament. Photographer: Simon Dawson/Bloomberg
Oct. 20 (Bloomberg) -- Alistair Darling, former Chancellor of the Exchequer, talks about the outlook for today's government spending cuts and the consequences for the U.K. economy. He speaks with Andrea Catherwood on Bloomberg Television's "The Pulse." (Source: Bloomberg)
Britain posted the largest budget deficit for any September since modern records began in 1993, highlighting the pressure on Chancellor of the Exchequer George Osborne to stick to his fiscal-consolidation program.
Net borrowing was 15.6 billion pounds ($25 billion), compared with 14.8 billion pounds a year earlier, the Office for National Statistics said in London today. The median of 13 forecasts in a Bloomberg News survey was a deficit of 14.5 billion pounds. The shortfall excluding government support for the financial sector widened to 16.2 billion pounds.
The figures come hours before Osborne is due to detail the deepest spending cuts in living memory in a statement to Parliament. The chancellor says the 83 billion-pound squeeze is needed to erase the record deficit and protect Britain’s top credit rating.
“We were looking for a fall from a year earlier so these numbers are disappointing,” Philip Shaw, chief economist at Investec Securities in London, said in a telephone interview. “The deficit is too high and firm action needs to be taken. Repairing holes in the public finances isn’t easy at the best of times and this won’t deflect the chancellor from his quest.”
In a separate report today, the Bank of England said policy makers split three ways for the first time in almost a year at their meeting earlier this month, with Adam Posen voting to boost asset purchases by 50 billion pounds.
Pound Weakens
The pound fell after the report before recovering to $1.5742 as of 10:03 a.m. in London, up 0.2 percent on the day. The yield on the benchmark 2-year government bond was down 2 basis points at 0.59 percent.
Revenue rose 7.8 percent in September, and government spending climbed 10.2 percent, the most since March. Defense and health posted the biggest gains, the statistics office said.
In the first half of the fiscal year that began in April, revenue growth outpaced spending, narrowing the deficit excluding financial interventions to 73.5 billion pounds. That leaves the government on course to meet the Office for Budget Responsibility’s full-year forecast of 149 billion pounds.
Britain had a deficit of 11.1 percent of gross domestic product in the fiscal year through March, the highest since World War II.
Cash Deficit
There was a public-sector cash requirement of 20.7 billion pounds in September. Economists predicted 15.3 billion pounds. The central-government cash deficit, the measure the Treasury says most closely indicates gilt sales, was 24.8 billion pounds. Net debt climbed to 57.2 percent of GDP from 55.9 percent.
The spending cuts, which begin in earnest in 2011, are winning over investors. The 10-year U.K. government bond yield has fallen 89 basis points to 3 percent since David Cameron’s Conservative-led coalition took office in May.
Cameron aims to virtually eliminate the biggest peacetime budget deficit by 2016, with cuts in ministries averaging 25 percent. In doing so, he risks widespread public opposition, tensions with his Liberal Democrat coalition partners and a possible backlash from departments forced to accept the deepest cuts in order to ease the burden on defense and schools.
The Labour Party argues the scale of the fiscal tightening risks derailing a recovery that is already showing signs of cooling and that taxes on banks should play a bigger role.
“The spending review needs to tick a number of boxes, particularly given the benefit of the doubt markets have already given the U.K. government,” Anthony O’Brien, an economist at Morgan Stanley, said in a research note.
To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net.
To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net.
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