THE dire state of Britain’s public finances was thrown into sharp relief yesterday after official statistics revealed that the government was forced to be a net borrower in January – the first time this has happened since records began in 1993 – as tax revenue plunged in a month that is usually a bumper one for receipts.
Sterling fell sharply to hit $1.5554 following the announcement, while the benchmark 10-year gilt yields rose sharply towards their previous highs near 4.1 per cent.
Data from the Office for National Statistics revealed that the government had to borrow £4.3bn in January compared to a £5.3bn surplus recorded in January 2009. This was in stark contrast to the £2.8bn surplus that economists had been expecting. The poor performance reflected in part a 20 per cent drop in income tax receipts on 2009 while departmental spending was 15 per cent higher.
The Treasury has now borrowed £122.4bn so far this fiscal year, which means that it may overshoot its £178bn borrowing forecast for 2009-10. Capital Economics expects total borrowing to be in the region of £180bn, putting the budget deficit at 12.8 per cent – a shade higher than troubled Greece’s 2009 deficit of 12.7 per cent. However, other economists such as the IFS and Citi’s Michael Saunders expect borrowing to undershoot the Treasury’s target.
While comparisons were made with the Club Med countries, Britain’s net debt as a share of GDP is 59.9 per cent – much lower than Greece’s 113 per cent.
Meanwhile, and in spite of the gloomy outlook for Britain’s fiscal position, the CBI reported yesterday that manufacturing orders improved further in February, with a particularly sharp rise in export orders as firms benefited from a weak pound and a pick-up in world trade.