Fall in government borrowing a boost for Chancellor

Some good news at last for Chancellor George Osborne. Picture: Reuters

Public sector net borrowing – stripping out the distorting effects of bank bailouts – fell to £13.2bn from some £14.4bn a year earlier, broadly in line with economists’ expectations.

The Office for National Statistics (ONS) also yesterday revised underlying borrowing for the 2012-13 financial year lower to £115.7bn, compared with an earlier estimate of £116.5bn.

The independent Office for Budget Responsibility (OBR), set up to monitor the state’s finances, expects underlying public sector net borrowing to rise in the latest financial year to about £120bn.

Howard Archer, chief UK and European economist at IHS Global Insight, the forecasting consultancy, said the figures put the coalition government “well on track” to beat its fiscal targets, but cautioned there is likely to be a “lagged impact” before the improving economy fully feeds through to lift tax revenues.

He said: “The recent improved economic performance means that pressure on Chancellor George Osborne to relax the fiscal squeeze to help the economy has fallen away and will likely only resurface should the economy suffer a marked relapse over the coming months.”

ING economist James Knightley added: “With activity data suggesting that the UK economy is gaining some momentum and with employment continuing to rise, the government looks on course to achieve its forecast cut in the deficit.”

The deficit in August was nursed lower by a £1.2bn drop in UK government borrowing to £12.7bn.

Local government borrowing edged up by around £200 million to £1.1bn. Corporation tax receipts were slightly higher at £1.3bn, but income tax receipts fell to £10.5bn from £11.1bn.

A Treasury spokeswoman said: “The economy is turning a corner, but there is a long way to go and the government is sticking to the economic plan that has already cut the deficit by a third.”