Public sector borrowing to dip but little cause for cheer

Economists predict a small year-on-year improvement in borrowing during August when official data is released on Tuesday. The marked improvement in UK economic growth in the second quarter is expected to have helped.

Borrowing rose by a further 3.8 billion in July, which marked an improvement on the 6.1bn seen a year earlier. But there was little cause for celebration, as it brought total borrowing in the four months of the financial year so far to 44.9bn.

Philip Shaw, economist at Investec Securities, is pencilling in 13.1bn of borrowing in August, down by some 500 million on a year earlier.

He said: "August tends to be one of the more demanding months for borrowing, partly because corporate tax inflows, which have been buoyant this year, do not feature strongly.

"The wider evidence does show the public finances are heading towards repair, but there is a very long way to go before they reach a position which is anywhere near sustainable."

Howard Archer, chief UK economist at IHS Global Insight, believes that last month's public sector net borrowing requirement (PSNBR) may come in even lower, at 11.5bn.

"Tax receipts are benefiting from the economy's return to growth since the fourth quarter of 2009 and from Value-Added Tax rising back up from 15 per cent to 17.5 per cent in January," he said.

"Consequently, we expect the PSNBR to come in at 11.5bn in August compared to 13.6bn in August 2009.

"Nevertheless, this would still be a worryingly high level and would maintain pressure on the coalition government not to falter in its fiscal consolidation plans."

Meanwhile, minutes of this month's Bank of England rate-setting meeting will be eyed closely on Wednesday for signs of any movement on the 200bn quantitative easing programme.