Borrowing down in UK but worse news could be on way

Public sector borrowing, excluding financial interventions such as bank bail-outs, fell to £6.5 billion, which is £1.2 billion lower than the previous year, and below the City’s expectations of £6.8 billion.

Borrowing between April and September was also revised down by £1.7 billion.

Mr Osborne briefed his Ministerial colleagues on the borrowing figures at the regular weekly meeting of Cabinet at 10 Downing Street yesterday morning.

They come a week before the Chancellor’s Autumn Statement, when he is expected to announce a package of measures to help boost the UK’s economy amid criticism his austerity measures choked off the recovery.

On the same day, the Office for Budget Responsibility will update its forecasts for Government borrowing, with many economists expecting the body to admit that Mr Osborne will fail to eradicate the structural deficit by 2014/15 as previously planned.

The figures mean Government borrowing in the year since April stands at £68.3 billion, which is still in sight of its target of £122 billion in the financial year. But there are increasing fears that the worsening state of the economy will scupper the deficit reduction plans by increasing the Government’s benefits bill and lowering its tax income.

Prime Minister David Cameron admitted that controlling Britain’s debt was “proving harder than anyone envisaged”.

James Knightley, an economist at ING Bank, said the finances were better than expected and the Government’s deficit reduction plan for the current financial year was “still achievable”.

But added: “The Government has been dropping clear hints that this borrowing forecast number is likely to be revised upwards next week because of much weaker than expected GDP growth.

“This suggests the improvement in taxation revenues may moderate and Government spending may not slow as much as hoped due to higher unemployment.”