Worst June on record for state deficit

SURGING government spending and a collapse in tax receipts meant Britain&rsquo;s public finances were the worst in June since records began in 1993, although the figures were better than had been expected.<br /><br />Official data released yesterday by the Office for National Statistics (ONS) revealed that public sector net borrowing hit &pound;13bn in June. Net debt stood at &pound;798.8bn, or 56 per cent of GDP. Central government current receipts in June were 5.7 per cent lower compared to 2008 and central government current spending rose 2.8 per cent on June 2008.<br /><br />Vicky Redwood, UK economist at Capital Economics, said: &ldquo;June&rsquo;s UK public finances figures are a touch better than expected, but do absolutely nothing to alter the big picture that they are in a dreadful state.&rdquo;<br /><br />She added: &ldquo;At the current rate of increase, borrowing is on course broadly to match the chancellor&rsquo;s full-year forecast of &pound;175bn. But there is surely a good chance that the rate of deterioration worsens, resulting in an even bigger total.&rdquo;<br /><br />In May, ratings agency Standard &amp; Poor&rsquo;s downgraded its outlook for Britain&rsquo;s triple-A credit rating to &ldquo;negative&rdquo; from &ldquo;stable&rdquo;, citing the grim state of Britain&rsquo;s fiscal position.<br /><br />UK fiscal policy has remained expansionary as the government lost control of the purse strings. This temporarily boosted demand, an effect which will soon have to be sharply reversed. Citigroup&rsquo;s Michael Saunders warned: &ldquo;Although the government seems reluctant to admit it, major and painful fiscal surgery is likely to be needed to return to fiscal sustainability, before either investors or ratings agencies lose patience.&rdquo;<br /><br />The Bank of England&rsquo;s deputy governor Charles Bean said yesterday that the central bank would study the government&rsquo;s strategy to reduce debt after the next election, but warned that the Bank would not be inclined to tighten monetary policy sharply if fiscal policy were being tightened sharply at the same time.<br /><br />Bean also said that he did not want to see a strong recovery in the value of sterling. The drop in its value has helped exporters.