Fiscal target in sights but borrowing rises

Last years 4G moble phone licence sale skewered figures. Picture: Getty

Data from the Office for National Statistics (ONS) showed that public sector borrowing grew by a worse-than-expected £2.8 billion last month.

However, analysts highlighted a number of one-off factors that distorted the result and said the Chancellor remained within his borrowing goals.

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 turns out to be in line with last year, the coalition government would meet the independent Office for Budget Responsibility’s (OBR) target for the financial year – which was revised down to £108bn 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 cautioned.

The ONS data showed that borrowing – excluding the distorting effect of bank bail-outs – totalled £9.3bn in February, compared with £6.5bn a year earlier. The latest figure had been expected to be about £8.8bn.

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 (QE) programme of asset purchases. There were no such transfers this year.

Central government receipts were £45.9bn, or about £500 million lower than in February last year, which included the income from QE.

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 to £53.8bn. Monthly expenditure comparisons with last year are partly affected by changes to the way that local authorities are funded.

Underlying public sector debt came in at £1.246 trillion, or 74.7 per cent of gross domestic product (GDP) at the end of the period, an increase on 72.5 per cent at the same time last year.

And while the overall UK debt burden – including bank bail-outs – was £2.2tn, slightly higher than a year ago, it was lower as a proportion of overall GDP, at 131.7 per cent.

Howard Archer, chief UK and European 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 Osborne may have his work cut out to achieve the new annual target set out by the OBR at the Budget.

David Kern, chief economist at the British Chambers of Commerce, said the rate at which borrowing was easing was disappointing given the pace of the revival in the wider economy.

He said: “Although borrowing in the financial year as a whole is likely to be lower than in 2012-13, progress is not as fast as we would like, given the faster pace of GDP growth in the current year.”

Alasdair Cavalla, economist at the Centre for Economics and Business Research, added: “Cebr remains of the view that the OBR is too optimistic in the long run, as it has based its forecast in part on over-optimistic investment forecasts.”