U.K. August Budget Deficit Narrows Amid Recovery Signs

Photographer: Matthew Lloyd/Bloomberg

GDP expanded 0.7 percent in the second quarter, and the recovery has picked up pace in the current quarter with house prices rising and builders, manufacturers and services firms all reporting the strongest growth for years. Close

GDP expanded 0.7 percent in the second quarter, and the recovery has picked up pace in... Read More

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Photographer: Matthew Lloyd/Bloomberg

GDP expanded 0.7 percent in the second quarter, and the recovery has picked up pace in the current quarter with house prices rising and builders, manufacturers and services firms all reporting the strongest growth for years.

Britain’s budget deficit narrowed in August as tax income rose and the government cut spending, providing further evidence that the recovery is taking hold.

Net borrowing excluding temporary support for banks was 13.2 billion pounds compared with a deficit of 14.4 billion pounds a year earlier, the Office for National Statistics said today in London. The shortfall was in line with the 13.3 billion-pound median forecast in a Bloomberg survey of 19 economists. Tax receipts rose 1.4 percent and spending fell 2.2 percent.

Britain’s economic revival has gathered pace recently, putting Chancellor of the Exchequer George Osborne on course to meet his fiscal targets this year. The improvement has boosted support for his Conservative Party and undercut the Labour opposition’s argument that spending cuts are stifling growth.

“With activity data suggesting that the U.K. economy is gaining some momentum, and with employment continuing to rise, the government looks on course to achieve its forecast,” said James Knightley, an economist at ING Bank NV in London. “Tax revenues are rising now and we are starting to see falls coming through from government departmental spending, which hadn’t been the case for a while.”

Photographer: Simon Dawson/Bloomberg

Britain’s economic recovery has gathered pace recently, putting Chancellor of the Exchequer George Osborne on course to meet his fiscal targets this year. Close

Britain’s economic recovery has gathered pace recently, putting Chancellor of the... Read More

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Photographer: Simon Dawson/Bloomberg

Britain’s economic recovery has gathered pace recently, putting Chancellor of the Exchequer George Osborne on course to meet his fiscal targets this year.

The pound was little changed after the data and was trading at $1.6039 as of 10 a.m. in London. The benchmark 10-year gilt yield was also barely changed at 2.91 percent.

Revenue rose across the board in August, with the exception of income and capital-gains tax, which declined 5.8 percent on the year because of changes in the timing of payments. Corporation-tax revenue climbed 3.7 percent. Spending by government departments fell 4.8 percent, with changes in the profile of payments to local authorities accounting for part of the drop. Welfare costs were unchanged from a year earlier.

Gaining Pace

Gross domestic product expanded 0.7 percent in the second quarter, and the recovery has picked up pace in the current quarter with house prices rising and builders, manufacturers and services firms all reporting the strongest growth for years.

In the first five months of the fiscal year, the underlying deficit narrowed to 46.8 billion pounds from 50.5 billion pounds, with revenue boosted by payments of stamp duty, the ONS said. Receipts and spending both rose by almost 3 percent.

The figures exclude coupon payments from the Bank of England’s Asset Purchase Facility (UKAPTARG) and the 28 billion-pound transfer of Royal Mail Group Ltd. pension assets in April 2012.

In August, the BOE transferred 3.9 billion pounds of coupon income, although none of it counted toward net borrowing as the 12.3 billion-pound ceiling permitted under European Union rules for the current fiscal year had already been reached in July.

Cash Boost

Cash measures of the public finances continue to receive the full benefit. There was a public-sector cash surplus of 3 billion pounds in August. Central government, which excludes state-owned banks, posted a deficit of 9.1 billion pounds. Net debt was 1.19 trillion pounds, or 74.6 percent of GDP. That’s up from 71.5 percent a year ago.

Osborne has reduced the deficit from a postwar high of 11 percent of GDP when he took office in 2010 to 7.4 percent, or 116 billion pounds, in the year through March. The Office for Budget Responsibility is predicting a similar shortfall in the current fiscal year. Austerity is projected to continue until 2018, three years later than first planned, after weaker-than-expected growth hit tax receipts and pushed up welfare costs.

While Britain’s economy has “turned a corner,” Osborne said in a speech in London this week, “it would be a mistake to think we can ease up in repainting our economy and fixing what went wrong.”

To contact the reporter on this story: {Jennifer Ryan} in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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