Rise in public sector borrowing in June is a blow to Osborne

Saturday, 21 July 2012 08:28

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The Government borrowed more than expected in June as the double-dip recession continued to be a strain on the public purse, official figures show.

Public sector net borrowing (PSNB), excluding interventions such as bank bailouts, was £14.4 billion last month, half a million pounds higher the £13.9 billion reported in June 2011, according to the Office for National Statistics (ONS).

Economic analysts had forecast a much lower PSNB figure of around £13.4 billion.

For 2011-12 as a whole, the Office for Budget Responsibility (OBR) forecast borrowing of £126 billion in the year to March, but has now said that the actual figure was £125.7 billion, down from its earlier estimate of £127.6 billion.

However, the figures have been helped by the transfer of £28 billion from the Royal Mail’s pension fund to the Government.

Taking that out of the equation, PSNB for the financial year to date has climbed by 11.7 per cent, substantially higher than the OBR’s prediction of a 4.6 per cent fall over the entire fiscal year.

Public borrowing excluding the contribution from the Royal Mail pension has reached £42.9 billion in the first three months of the 2012-13 financial year, compared with £38.4 billion in the same period last year.

The Treasury said: "It is too early in the financial year to draw conclusions about the year as a whole. This is volatile data and prone to revision."

The latest figures will heap urther pressure on George Osborne as he strives to meet his deficit reduction target of £120 billion for 2012-13.

If this trend continued over the rest of the fiscal year, the PSNB would come in around £140 billion, which would be £20 billion above his target, according to Howard Archer, chief UK and European economist at IHS Global Insight.

Dr Archer said: “Another month, another set of bleak public finance data that make very worrying reading for the Chancellor.

“Three months into the fiscal year and Mr Osborne is already facing an almighty struggle to meet his fiscal targets for 2012-13 and looks ever more likely to miss them.”

Jason Conibear, market analyst at Forex specialist Cambridge Mercantile, said: “Following the severe IMF downgrade, this latest data wraps up another disastrous week for the Chancellor.

“The walls are closing in on George Osborne, Plan A and the core policy of the Coalition Government.”

He added: “The economy and the public purse need growth and they need it now. The Chancellor can only hope that the Funding for Lending scheme counterbalances its deficit reduction measures.”

 

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