U.K.’s Widening Deficit Casts Doubt on Fiscal Goals
The shortfall, which excludes government support for banks, was 14.4 billion pounds ($23 billion) compared with 13.9 billion pounds a year earlier, the Office for National Statistics said in London today. The median forecast of 20 forecasts in a Bloomberg News survey was for a deficit of 13.4 billion pounds.
With the U.K. struggling to climb out of a recession, speculation is growing that Osborne will miss his target of cutting the deficit to 120 billion pounds in the fiscal year that began April 1. The International Monetary Fund said yesterday the government should be ready to introduce temporary tax cuts and increase spending if growth fails to materialize.
“It is clear that the recession is leading to a worsening of the U.K.’s underlying fiscal position,” said James Knightley, an economist at ING Bank in London. It “raises more question marks over the effectiveness of the government’s austerity measures.”
The pound stayed lower against the dollar after the report and was trading at $1.5700 as of noon in London, down 0.2 percent on the day. The 10-year gilt yield was down 2 basis points at 1.507 percent.
The Treasury played down the figures, saying it was too early in the fiscal year to draw conclusions. “This is volatile data and is prone to revision,” it said in a statement in London.
Royal Mail Boost
In the first three months, the deficit was 42.9 billion pounds, up from 38.4 billion pounds in the year-earlier period. The figures exclude a one-time boost in April from the 28 billion-pound transfer of Royal Mail Group Ltd. pension assets to the public sector.
The increase in borrowing in June was driven by a deterioration in the financial position of publicly controlled corporations and locals authorities, the statistics show.
Central government receipts rose 3.6 percent and spending declined 0.8 percent. Still, revenue in the fiscal year to date was just 2.5 percent higher than a year earlier, below the Office for Budget Responsibility’s forecast of about 4 percent for the year as a whole.
Prime Minister David Cameron, who has staked his reputation on eliminating the structural deficit by 2017, acknowledged in a newspaper interview yesterday that austerity may continue until 2020 as the euro-region crisis depresses the economy.
The opposition Labour Party says the speed at which the government is trying to reduce borrowing is making things worse. U.K. gross domestic product probably fell for a third straight quarter between April and June, according to the National Institute of Economic and Social Research.
Today’s report is “another damaging blow to David Cameron and George Osborne’s failed economic plan,” Rachel Reeves, a Labour Treasury spokeswoman,” said in a statement. “By choking off the recovery and pushing the economy into recession the chancellor has ended up borrowing more, as we repeatedly warned.”
A cash measure showed the public finances in deficit by 3 billion pounds in June. A deficit of 8.5 billion pounds was forecast. Net debt climbed to 1.04 trillion pounds, or 66.1 percent of GDP, the highest since records began in March 1993.
Net borrowing in the fiscal year that ended in March was 1.9 billion pounds lower than previously estimated at 125.7 billion pounds, or 8.2 percent of GDP. The revision was largely due to new estimates of capital spending by local authorities, the statistics office said.
Elsewhere, profit declines for hundreds of Chinese companies in the first half may increase pressure on the government to reduce corporate taxes as part of efforts to stem the economy’s slowdown.
Net income declined from a year earlier for more than half of 760 listed companies to report results, worse than in the first six months of 2009, Societe Generale SA said yesterday. Credit Agricole CIB sees tax cuts as a likely policy tool. them, not against them,” he said.
Import prices in Australia rose 2.4 percent in the second quarter from the prior period, while export prices gained 1 percent, both faster than forecast. Taiwan’s export orders fell for a fourth straight month in June.
In Europe, German producer prices fell 0.4 percent in June from May, double the median estimate in a Bloomberg survey of economists. It was the second consecutive drop following four increases.
Mexico’s central bank is forecast to leave its benchmark interest rate unchanged at 4.5 percent, where it’s been since 2009. Canada will report a 1.7 percent increase in the consumer price index from a year earlier, according to analysts.
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