Obsorne under pressure amid UK borrowing fears

Mr Osborne will be hoping that official GDP figures will show the UK economy grew in the first quarter of the year. Picture: PA

Public sector borrowing fell by just £300 million in 2012-13 to £120.6 billion, according to figures released yesterday by the Office for National Statistics.

The figures come as a further blow for Mr Osborne after the UK’s credit rating was downgraded by ratings agency Fitch last week, and following calls from the International Monetary Fund for a change from austerity measures.

The Treasury insisted the reduction showed the government was “fixing” the country’s economic problems.

However, Labour said the figures marked the final failure of Mr Osborne’s deficit-reduction strategy – requiring 400 years to balance the books at the current rate of progress.

Mr Osborne will now be hoping that official GDP figures  tomorrow will show the UK economy grew in the first quarter of the year, avoiding a triple-dip recession.

Liberal Democrat Treasury chief secretary Danny Alexander denied the government’s strategy had “stalled” but admitted that progress was slower than they hoped.

He warned that departmental budgets which were not ring-fenced faced further cuts of 5 to 6 per cent in the forthcoming spending round.

“There is a collective agreement around the Cabinet table that we have to deal with the deficit, that we have to continue the action necessary to get the nation’s finances back on the right track,” he said.

“Yes, it is tough. Yes, the road is harder and longer than we first forecast. The commitment is unwavering to that.

“We are going to stick to the plan that we set out, because it is the right thing for this country.”

Labour Treasury spokesman Chris Leslie said that with borrowing expected to be broadly the same this year, the government was having to borrow £245bn just to meet the costs of its “economic failure”.

“These figures show that the government’s failed economic policies have been totally self-defeating, as a flatlining economy has seen deficit reduction grind to a halt,” he said.

“George Osborne no longer has a deficit-reduction plan. In fact, at this rate, it will take 400 years to balance the books.”

In the City, economists were unimpressed by the figures. Howard Archer, of IHS Global Insight, said the pace of deficit reduction “makes a snail look fast”.

“March public finance data are unlikely to take the heat off the Chancellor and he faces another very difficult year ahead on both the growth and the public finance fronts,” he said.

Rowena Crawford, senior research economist at the Institute for Fiscal Studies, said: “Whether borrowing is slightly lower or slightly higher in cash terms from one year to the next is not of any direct economic importance. What is important is the bigger picture.”

Mr Osborne, meanwhile, rejected criticism in a warning last week by IMF chief economist Olivier Blanchard that he was “playing with fire” if he continued with his current strategy.

“That is one voice,” Mr Osborne said. “The chief economist has a well-known set of views on this which he has expressed in various forms over several years.”

The ONS said delayed or slashed government departmental spending helped drive net borrowing, excluding financial interventions such as bank bailouts, £1.6bn lower to £15.1bn in March.