Britain posted a larger budget deficit than economists forecast in March, underscoring the challenge facing Chancellor of the Exchequer George Osborne as he tries to cut borrowing.
Net borrowing excluding support for banks was 18.2 billion pounds ($29.4 billion), compared with 18 billion pounds a year earlier, the Office for National Statistics said in London today. The median of 20 forecasts in a Bloomberg News survey was for a shortfall of 16 billion pounds. Spending rose 4.2 percent and tax revenue climbed 1.4 percent.
The figures come as Prime Minister David Cameron renews his commitment to erasing a budget deficit that totaled 8.3 percent of gross domestic product in the last fiscal year. Austerity is putting governments under strain across Europe, with Nicolas Sarkozy slumping to second place in the first round of French presidential elections and the government of the Netherlands collapsing yesterday amid a clash over spending cuts.
“When one considers the level of the deficit then it’s a big reminder that the degree of fiscal tightening that remains necessary is considerable,” Philip Shaw, an economist at Investec Securities in London, said before the data was released. “Without strong growth it’s difficult to see quick improvement from the public finances.”
The pound fell as much as 0.1 percent against the dollar after the report and was trading at $1.6153 as 9:38 a.m. in London, up 0.1 percent on the day.
The Conservatives and their Liberal Democrat coalition partners have made erasing the structural deficit their key policy objective after borrowing swelled to 11.2 percent of GDP in the aftermath of the financial crisis and recession.
The program will see more than 700,000 government jobs axed by 2017 in the deepest cuts since World War II. Fitch Ratings and Moody’s Investors Service have warned that any slippage could cost Britain its top credit rating. The Labour opposition says the government is going too fast and damaging the recovery.
In the fiscal year through March, the deficit narrowed to 126 billion pounds from 136.8 billion pounds a year earlier, in line with official forecasts. Taxes rose 3.9 percent and spending gained 2 percent. Departmental spending fell 0.1 percent, the first decline since 1955, the statistics office said.
The deficit including government support for banks was 15.9 billion pounds in March compared with 15.1 billion pounds a year earlier. Net debt rose to 1.02 trillion pounds, or a record 66 percent of GDP, up from 60.5 percent a year earlier.
There was a public-sector cash requirement of 16.5 billion pounds in March. Economists predicted a 13 billion-pound deficit.
With polls showing the Conservatives losing public support since the budget, Cameron yesterday sought to unify the government around a renewed commitment to deficit reduction by ordering departments to identify potential savings equal to 5 percent of their annual spending to meet unexpected costs.
Labour has attacked the budget measures for helping the rich at the expense of pensioners and charities and says the government is holding back the recovery by trying to cut the deficit too quickly.
Government figures tomorrow may show Britain narrowly avoided a recession in the first quarter as the economy grew just 0.1 percent following a 0.3 percent contraction in the fourth quarter, according to the median of 40 forecasts in a Bloomberg survey.
Output is still well below its pre-recession peak in early 2008 and official forecasters see little growth until next year as inflation outpaces wage increases, unemployment rises and tax increases and spending curbs eat into household budgets.
Concern is also growing that the recession in the euro region, a key market for British exports, is intensifying.
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