Budget Deficit Narrowed More Than Forecast in November on Higher Revenue
Net borrowing excluding support for banks fell to 18.1 billion pounds ($28.5 billion) from 20.4 billion pounds a year earlier, the Office for National Statistics said in London today. The median of 15 forecasts in a Bloomberg News survey was a reading of 19.7 billion pounds. Tax revenue expanded 7.1 percent, while spending increased 0.8 percent.
The U.K.’s Office for Budget Responsibility cut its growth forecasts last month, prompting Chancellor of the Exchequer George Osborne to borrow more and extend spending cuts to trim the budget deficit. The economic recovery has lost traction as officials in Europe, Britain’s biggest trading partner, struggle to contain the sovereign debt crisis, and Moody’s Investors Service said yesterday the U.K. is not immune to the turmoil.
“It is clearly encouraging news for the chancellor,” James Knightley, an economist at ING Bank, said in an e-mailed note. “However, we are concerned that the rate of improvement could easily slow and possibly reverse given a deteriorating growth outlook.”
In the first eight months of the fiscal year, the deficit was 88.3 billion pounds compared with 98.7 billion pounds a year earlier. In that period, government revenue rose 4.8 percent and spending was up 1.9 percent.
U.K. bonds have benefited as Osborne pushes on with his fiscal plan and Europe’s debt turmoil worsens. The 10-year gilt was little changed today, with the yield at 2.08 percent as of 10:52 a.m. in London. It declined to 2.034 percent on Dec. 16, the lowest on record.
The pound rose against the dollar and traded at $1.5735, up 0.5 percent from yesterday.
The OBR last month cut its growth forecast for 2011 to 0.9 percent from a previous projection of 2.5 percent. In his autumn spending statement last month, Osborne raised his estimate for the deficit to 120 billion pounds in the financial year ending in March 2013, more than the 101 billion pounds he’d expected previously.
The chancellor also extended the duration of his austerity plan by two years from April 2015. The cuts are in addition to 80 billion pounds of reductions already planned.
Moody’s analyst Sarah Carlson said yesterday that the U.K. “faces rising challenges, which means that there’s a reduced ability to absorb further macroeconomic or fiscal shocks.” Moody’s rates Britain Aaa, and Carlson said Osborne’s commitment to his deficit-reduction program is an “important contributor” to the rating.
The U.K. Treasury said in a statement that the budget data show the government’s commitment to sticking to its fiscal plans even as the crisis in Europe worsens.
Europe bolstered its anti-crisis arsenal this week, channeling 150 billion euros ($196 billion) to the International Monetary Fund to help stem the region’s debt burden. The European Central Bank will lend euro-area banks 489 billion euros for three years, it said today, more than economists had forecast. The move is the ECB’s latest attempt to keep credit flowing to the economy.
Today’s report shows the deficit including government support for banks was 15.2 billion pounds in November compared with 18.4 billion pounds a year earlier. There was a public- sector net cash requirement of 10.6 billion pounds, below the cash shortfall of 10.3 billion pounds that was predicted by analysts. Net debt rose to a record 977 billion pounds, equating to 62.8 percent of GDP. That’s up from 57.5 percent a year earlier.
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