Borrowing worse than expected

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Public sector borrowing grew by a worse-than-expected £2.8 billion last month but analysts said the Government remained on track to meet its new annual deficit target.

Figures from the Office for National Statistics (ONS) showed that borrowing – excluding the distorting effect of bank bail-outs – was £9.3 billion, compared with £6.5 billion a year ago. The latest figure had been expected to be about £8.8 billion.

Last year’s number was reduced by a one-off windfall from 4G mobile licences as well as interest earned from the Bank of England’s quantitative easing programme of asset purchases. There were no such transfers this year.

Central government receipts were £45.9 billion, 1.2 per cent or about £500m lower than in February last year, which included the income from QE.

However income tax revenue was £500m higher while revenue from stamp duty rose by 54.4 per cent, or £400m.

Whitehall spending rose by 7.8 per cent, or £3.9 billion, to £53.8 billion. Monthly expenditure comparisons with last year are partly affected by changes to the way that local authorities are funded.

Underlying public sector debt was £1.246 trillion, or 74.7 per cent of gross domestic product (GDP) at the end of the period, an increase of 72.5 per cent at the same time last year, and also up on last month’s 74.6 per cent.

Jonathan Loynes, chief European economist at Capital Economics, said: “February’s public finances figures confirm that the UK’s budget deficit is continuing to make slow downward progress.”

He said that, if monthly borrowing in March is the same as last year, the Government would meet the independent Office for Budget Responsibility’s target for the financial year – which was revised down to £108 billion earlier this week.

“But the big picture is still that there is a very long way to go before the public finances are restored to full health,” he added.

Underlying public sector borrowing for the year to date – excluding cash transfers relating to the Royal Mail pension plan and QE – was £99.3 billion, £4.4 billion lower than the same period last year.

Today’s ONS figures showed tha VAT receipts were £500m higher than the same time last year.

Net spending on social benefits rose by about £400m. Expenditure on interest payments fell by £300 million.

The overall total UK debt – including bail-outs – was £2.2 trillion, slightly higher than at the same time last year but lower as a proportion of overall GDP, at 131.7 per cent.

Howard Archer, chief European and UK economist at IHS Global Insight, said the figures presented a mixed picture for the Chancellor.

They suggested underlying improvement in the public finances in February but indicated that George Osborne may have his work cut out to achieve the new annual target set out by the OBR at the Budget.

Andrew Goodwin, senior economic adviser to the EY Item Club, said overall the figures would be “slightly disappointing” for the Chancellor and that meeting the OBR’s new deficit target “will be a stretch”.

David Kern, chief economist at the British Chambers of Commerce, said the pace at which borrowing was falling was disappointing.

He said: “Progress is not as fast as we would like, given the faster pace of GDP growth.”