U.K. Posts Larger-Than-Forecast Deficit as Spending RisesScott Hamilton
Britain posted a larger-than-forecast budget deficit in February as government spending increased at its fastest annual pace for almost a year.
Expenditure exceeded revenue by 9.3 billion pounds ($15.3 billion), compared with 9.2 billion pounds a year earlier, the Office for National Statistics said in London today. The median forecast in a Bloomberg survey was for a deficit of 8.6 billion pounds.
With the government less than half way toward eliminating the budget deficit, Chancellor of the Exchequer George Osborne warned in his March 19 budget that austerity is set to continue for another five years despite a better-than-expected economic outlook.
“The return of growth has not in any sense obviated the need for continued austerity,” Paul Johnson, director of the Institute for Fiscal Studies, said yesterday. “We are still looking at borrowing 108 billion pounds this year -- nearly 50 billion pounds more than planned back in 2010.”
The pound was little changed against the dollar after the data and was trading at $1.6501 as of 10:05 a.m. London time. The yield on the benchmark 10-year U.K. government bond was down 1 basis point at 2.76 percent.
Revenue rose 4.9 percent from a year earlier last month, with taxes increasing across the board. Late filings of self-assessment tax bills boosted income tax.
Spending jumped 7.8 percent, the most since April 2013, with expenditure at the health department and higher pension benefits driving the increase, the ONS said.
Consumer spending fueled by a booming housing market is helping Osborne tackle a deficit that stood at a record 11 percent of gross domestic product when he took office in 2010.
Stamp-duty payments on purchases of property and shares rose 400 million pounds in February from a year earlier, or 54 percent, the ONS said. In the first 11 months of the fiscal year, revenue from stamp duty totaled 11.4 billion pounds, up about 3 billion pounds, or 37 percent, on the year.
The Office for Budget Responsibility raised its 2014 growth forecast to 2.7 percent this week and said the deficit in fiscal 2013-14 will be 3.4 billion pounds lower than previously estimated at 107.8 billion pounds, or 6.6 percent of gross domestic product.
“The OBR’s forecast of a further drop in the underlying deficit to 95.5 billion pounds in 2014-15 could prove to be a bit pessimistic if the economy expands by around 3 percent as we expect,” said Jonathan Loynes, chief European economist at Capital Economics Ltd. in London. “But the big picture is still that there is a very long way to go before the public finances are restored to full health.”
The OBR, Britain’s fiscal watchdog, predicts the budget will be back in balance in 2018-19.
In the first 11 months of the current fiscal year, the deficit was 99.3 billion pounds compared with 103.8 billion pounds a year earlier. The deficit in February last year was reduced by 2.3 billion pounds of proceeds from the sale of 4G mobile-phone licenses.
Lower-than-expected borrowing helped the Debt Management Office to reduce planned gilt sales in fiscal 2014-15 by 25 billion pounds to 128.4 billion pounds.
It estimates it over-financed the deficit by 11.5 billion pounds in the current fiscal year, with the central government net cash requirement excluding Bradford & Bingley and Northern Rock Asset Management now projected to be 87.5 billion pounds.
In February, the deficit on that basis was 4.9 billion pounds, taking the total for 2013-14 so far to 58 billion pounds. The overall public sector including state-controlled banks posted a 204 million-pound surplus last month.
While the opposition Labour Party is leading in the polls, it remains less trusted than the Conservatives on the economy, according to regular YouGov Plc surveys. Warning that years of austerity lie ahead, Osborne challenged Labour this week to match his commitment to cut the deficit and cap the overall cost of welfare.