Chancellor George Osborne received a budgetary boost yesterday as figures revealed the government had cut the budget deficit, but weak retail sales could hit a key economic growth figure in the run up to the General Election.
Government borrowing – as measured by the public sector net borrowing requirement excluding public sector banks – totalled £87.3bn in the financial year ending in March, down £11.1bn on the year before, according to the Office for National Statistics (ONS).
The figure beat the Office for Budget Responsibility’s (OBR) March forecast of £90.3bn, although the ONS warned yesterday’s figure was subject to future revision.
“The OBR has taken a more cautious view of the outlook for both the economy and the public finances, but there is now a good chance that these expectations will be exceeded,” said economist Martin Beck from the EY Item Club.
“This suggests that the next government will probably be able to achieve its borrowing targets with a lesser degree of fiscal consolidation than is currently assumed.”
However, separate economic data was less positive for Osborne and the UK recovery. March saw a decline in retail sales of 0.5 per cent when compared to February, the ONS said.
Vicky Redwood, chief economist at Capital Economics, called the figures “disappointing”. “This somewhat increases the chances of a slowdown in overall GDP,” she said.
Sales were up 4.2 per cent compared to the same month a year earlier – the 24th consecutive month of year-on-year growth – yet the monthly drop prompted several City economists to suggest quarter one GDP expansion could be more modest than expected.
Economic growth for the first three months of the year will be published by the ONS next Tuesday, just nine days before the election.
Redwood believes that growth could have slowed from the 0.6 per cent growth seen in the final three months of 2014.
Osborne yesterday boasted of the UK’s economic performance under the coalition government. “Britain, last year, grew faster than any other major advanced economy in the world – and is set to be one of the fastest growing in the next two years,” he said.
Beck added that Osborne’s task to control the public finances has been helped by an environment of low inflation throughout much of the world.
“Very low inflation has also been beneficial because of the impact on the cost of servicing index-linked gilts that has seen debt interest payments fall more than 60 per cent year-on-year in March,” he said.
“We expect inflation to remain close to current rates for much of this year and as a result debt servicing costs are likely to stay very low for at least the first half of 2015-16.” The consumer price index was unchanged in March, compared to a year earlier.