views

Government debt rises by 20bn in May

GOVERNMENT borrowing in May increased by the largest amount since monthly records began and could reach as high as &pound;200bn this fiscal year if it continues at its current pace, official data showed yesterday.<br /><br />Figures from the Office of National Statistics revealed that public sector net borrowing was &pound;19.9bn in May 2009 and the public sector current budget was in deficit by &pound;17.5bn. <br /><br />At the end of May 2009 public sector net debt stood at &pound;774.8bn, which is equivalent to 54.7 per cent of GDP. May is not normally a bumper month for government borrowing, typically averaging about &pound;7bn. <br /><br />The new data called chancellor Alistair Darling&rsquo;s Budget predictions into question. <br /><br />Gemma Tetlow, a Senior Research Economist at the Institute for Fiscal Studies (IFS), said: &ldquo;Government borrowing has increased more sharply over the past two months than the Budget predicted for the financial year as whole. We will need to see receipts perform more strongly in coming months if the chancellor is to avoid another set of downgrades to his public finance forecasts.&rdquo;<br /><br />However, Liam Byrne, chief secretary to the Treasury, said: &ldquo;Today&rsquo;s figures are in line with our Budget projections and reflect the real help we are giving right now to protect businesses, jobs and homes along with the investments we are making to speed up recovery.&rdquo;<br /><br />But the sheer scale of government debt is expected to put a dampener on the pace at which the UK economy will recover from the recession and heralds years of austerity from spending cuts and tax hikes that will be necessary to pay for the debt. Economists are expecting very weak economic growth until at least 2012.<br /><br />David Kern, chief economist at the British Chamber of Commerce, said: &ldquo;The need to slash government borrowing and reduce debt after the recession ends will inevitably dampen UK growth prospects for a considerable period.&rdquo;<br /><br />Kern also said that the level of public debt could threaten the UK&rsquo;s international credit rating further unless credible measures are taken to curb fiscal deficits and debt in the medium-term.