BCC describes progress as ‘painfully slow’ as ONS data shows £13.2bn deficit, down from £14.4bn a year earlier
A drop in government spending helped cut UK borrowing last month, prompting economists to forecast that the chancellor is on track to meet his fiscal target for this year.
Borrowing for the last financial year as a whole was also revised down slightly by the Office for National Statistics as it published data on the public finances.
The ONS said the government’s preferred measure of public borrowing, which strips out some of the effects of its bank bailouts, showed a deficit of £13.2bn in August. That was smaller than £14.4bn a year earlier and also slightly under the £13.5bn consensus forecast in a Reuters poll of economists.
The government’s progress on cutting Britain’s deficit – the gap between the government’s income and spending – was described as “painfully slow” by one business group. However, analysts said the public finances appeared to be on an improving trend and any pickup in the economy could help further as tax receipts rise and the benefits bill falls thanks to unemployment coming down.
The government’s target for borrowing in this financial year is £120bn, little change from last year, when borrowing came in at £115.7bn.
August’s outcome, which was helped by a drop in spending by government departments, takes the cumulative borrowing for this financial year to date to £38bn. Alan Clarke, economist at Scotiabank, noted that figure was “well down” on £48bn two years ago and £57bn three years ago, while last year’s numbers were distorted by one-off effects.
He said that even without monthly numbers for the rest of the year showing an improvement compared with the same month a year ago, “full-year borrowing will be a fraction under £100bn” – meaning the chancellor comfortably makes his target.
“There is a good case for an even better number, especially now that the macro data have started to outperform,” added Clarke.
Philip Shaw, economist at Investec, said there was a chance the full year would even beat next year’s £108bn borrowing target.
“The chancellor therefore faces a more comfortable time at his autumn statement than he has for a while, with the prospect of reporting against a background of stronger growth and better public finances than was envisaged at the budget in March,” he said.
But he added a note of caution: “However, just to put things into perspective, borrowing for 2013/14 at the time of Mr Osborne’s first budget in June 2010 was envisaged to be running at just £60bn. Hence there is still some way to go before the chancellor’s task is complete.”
The Treasury has come under fire from business groups for not cutting Britain’s deficit fast enough and at the same time from trade unions and opposition MPs for pushing ahead with austerity measures to the cost of both growth and family finances. Osborne’s office welcomed the latest public finance numbers.
“Borrowing is down this month, and revisions show that borrowing this year and last year was lower than previously thought. The economy is turning a corner, but there is a long way to go and the government is sticking to the economic plan that has already cut the deficit by a third and enabled the private sector to create over 1.4m new jobs,” said a spokesman.
But the British Chambers of Commerce said the deficit was still “unsustainably high”. The business group’s chief economist, David Kern, said: “The improvement in economic growth seen in recent months will help to reduce the deficit further, but progress remains painfully slow. The weakening of our financial sector and drop in oil and gas reserves have created a hole in our public finances, and our ability to generate tax revenues will struggle to return to pre-recession levels, even when the pace of growth picks up.”
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