Budget deficit at record high
Monday, 24 Sep 2007 11:24
Chancellor Alistair Darling may exceed his borrowing target
Britain's budget deficit widened to its highest level on record in August, new figures released by the Office for National Statistics (ONS) show.
Public sector net borrowing, the government's preferred measure of the public finances, stood at £9.1 billion in August – the fifth month of the fiscal year. The figure is greater than the £6.7 billion recorded for August 2006 and marks the highest level since records began 14 years ago.
A second measure of the public finances, the public sector net cash requirement, stood at £5 billion in August – up from the £3.7 billion for the same month last year and the biggest cash requirement for August since records began in 1984.
With spending outstripping levels of tax income the current budget deficit, which strips out government investments, subsequently stood at £7.0 billion in August – up from the £5.5 billion recorded for the same period of the previous year.
Some analysts say that with August traditionally a deficit month, the government may yet be able to meet its overall borrowing target of £34 billion for the full financial year.
However others claimed that the data was worse than had been expected and cast doubt on the ability of chancellor Alistair Darling to meet the target, particularly in light of the current turmoil on the world's financial markets.
A global credit crunch prompted by rising default levels in the US sub-prime mortgage market has led to predictions that UK economic growth could subsequently slow.
Commenting on the latest data Global Insight chief economist Howard Archer said: "The public finances could be significantly hit over the coming months if the current financial market turmoil increasingly weighs down on economic activity, the housing market and City bonuses, thereby undermining tax revenues."
He added that the growing risk of a downturn in economic growth and a marked deterioration in the public finances in 2008 supported the case for prime minister Gordon Brown to call an autumn election.
Meanwhile Capital Economics spokesman Paul Dales said that, based on current official growth predictions, the government was likely to overshoot its full-year borrowing target by some £3 billion.
But he added that the chancellor's forecast for economic growth was "very optimistic" in light of current events and warned that the outlook for the public finances was therefore even worse than the latest data suggested.