Fears of an overshoot grow as budget deficit jumps unexpectedly to £16.2bn

PUBLIC borrowing unexpectedly rose to a record high for September, demonstrating the sheer scale of the challenge facing the coalition government as it yesterday unveiled deep spending cuts.

Excluding the temporary effects of financial intervention, net borrowing was £16.2bn, well above the consensus forecast of £14.3bn. Including the effects of this intervention, net borrowing was £15.6bn.

Some economists think that the government is on track to overshoot its 2010-11 target.

“Six months into the fiscal year, a simple extrapolated trend suggests that net borrowing excluding intervention is set to rise to £156bn by the end of the year, £7bn above the June Budget forecast of £149bn and bang in line with last-year’s outturn,” warned Barclays Capital’s Simon Hayes.

Although the detail of the figures showed some welcome improvements, notably in terms of growing tax receipts, there was a worryingly sharp increase in the contribution of debt interest payments, which surged 155 per cent to £2.3bn from £912m a year earlier.

“This is partly because higher inflation has pushed up the interest payable on index-linked gilts, but it is also due to the large increase in government debt which now stands at 57.2 per cent of GDP on the Treasury’s favoured ‘excluding financial interventions’ measure,” said Nida Ali, economic advisor to the Ernst & Young ITEM Club