Surprise as public borrowing rises

Public sector net borrowing for February, excluding financial interventions such as bank bailouts, was £11.8 billion, compared to £9.5 billion a year earlier, the Office for National Statistics (ONS) said.

This was nearly double the £6.9 billion forecast by economists and a record for the month of February.

Borrowing for the year to date now stands at £123.5 billion after the Government recorded its weakest tax haul since January last year.

The worse-than-expected performance will cast doubt on hopes that the Government is on course to beat its £148.5 billion target for the financial year.

Economists had been earmarking a potential £10 billion windfall for the Chancellor ahead of today’s borrowing figures, although experts warned that next year’s tough borrowing target of £116 billion would give the Government little room for manoeuvre in the Budget.

Jonathan Loynes, chief European economist at Capital Economics, said the figures, combined with higher-than-expected inflation of 4.4% revealed today, gave a “grim Budget backdrop” though total borrowing for the year should still undershoot the Government target.

He said: “February’s public finances and consumer prices numbers present a distinctly unfavourable backdrop to tomorrow’s Budget.”

He went on: “Barring a disaster in March, this still points to an undershoot of the full year forecast of £148.5 billion, but that undershoot may be closer to £5 billion than the £10 billion to £15 billion previously hoped.2

Total tax receipts fell by nearly 1% in February to £43.1 billion, the ONS said, the first decrease since January last year.

Meanwhile, Government spending increased by nearly 5% to £49.3 billion. Within this figure, interest paid on borrowing increased by 11.2% to £4 billion.