May 22 (Bloomberg) -- Britain’s underlying budget deficit widened in April, dealing a blow to Chancellor of the Exchequer George Osborne as the International Monetary Fund prepares to deliver its verdict on the U.K. economy.
The shortfall excluding temporary support for banks was 10.2 billion pounds ($15.4 billion), compared with 8.9 billion pounds a year earlier, the Office for National Statistics said in London today. The figures exclude the transfer of 3.9 billion pounds of coupon cash from the Bank of England’s gilt holdings.
The report comes hours before IMF officials are due to announce the findings of their annual Article IV review. In April, the Washington-based lender urged Osborne to consider easing his deficit-cutting program to spur growth. While the economy has shown signs of gaining momentum since then, figures today showed retail sales unexpectedly fell last month.
“We’re more optimistic on the shorter term,” said Samuel Tombs, an economist at Capital Economics Ltd. in London. “On the medium term, we’re still expecting pretty weak growth. We’re also forecasting higher borrowing for this year.”
The deficit in the fiscal year ended March was 119.5 billion pounds instead of the initially estimated 120.6 billion pounds. It means borrowing was 1.4 billion pounds lower than in 2011-12. The Office for Budget Responsibility predicts a deficit of 119.8 billion pounds, or 7.5 percent of gross domestic product, in the current fiscal year. The underlying figures also exclude the 28 billion-pound transfer of Royal Mail Group Ltd. pension assets in April 2012.
The public finances traditionally get a boost in April, the first month of the fiscal year, from quarterly payment of tax on company profits. Excluding BOE coupon income, tax income was little changed in April on the year, with corporation tax falling 5.3 percent. Government spending rose 1.1 percent. Including the Bank of England cash, tax income rose 8.5 percent on the year.
The transfer from the central bank is part of 12.3 billion pounds that can count against net borrowing this year.
In total, the BOE will transfer 23.4 billion pounds in the first six months of the year to clear cash that had accumulated in the its asset-purchase facility as of March 2013. In addition, there will be quarterly payments of cash that build up during the current fiscal year. Unlike net borrowing, cash measures of the public finances and net debt will receive the full benefit.
The IMF is due to announce the findings of its two-week assessment at noon in London today, a month after cutting its growth forecasts and warning that Osborne risked “playing with fire” by pressing ahead with the deepest budget cuts since World War II. The fund had previously supported Osborne over his handling of the economy.
OBR forecasts in March show the government borrowing 160 billion pounds more by April 2015 than had been forecast in June 2010, forcing the government to miss its target of balancing the structural budget deficit within five years.
There was a public-sector cash surplus of 10.8 billion pounds in April, a figure boosted by the financial position of publicly controlled banks. Central government posted a cash deficit of 2.3 billion pounds.
Net debt was little changed at 1.19 trillion pounds last month, or 75.2 percent of GDP. It is forecast by the OBR to peak at 85.6 percent of GDP in 2016-17, three years later and 345 billion pounds higher than first envisaged.
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