By Richard Johnstone | 21 September 2012
Public sector net borrowing hit a record £14.41bn in August, the Office for National Statistics revealed today, compared with £14.37bn at the same time last year.
According to the Public sector finances bulletin, borrowing by central government rose by £700m to £13.5bn as spending increased faster than income. Expenditure rose by 2.5% and receipts by 1.8%. In the same period, local government borrowing fell by around £1bn, while public corporations borrowed around £400m more.Total government borrowing for the 2012/13 financial year so far is £59bn, up by more than £10bn for the same period in 2011/12, when it stood at £48.4bn. These figures exclude the transfer of the Royal Mail pension scheme funds to the Treasury.
David Kern, chief economist at the British Chambers of Commerce, said the August monthly deficit ‘was slightly smaller than the markets expected’.
However, he added that unless the trend from April to August 2012 reversed in the next few months ‘we now expect total borrowing in 2012/13 as a whole to exceed the total predicted by the Office for Budget Responsibility at the time of the Budget by more than £20bn’. The OBR expected 2012/13 borrowing to total £119.9bn.
Kern added: ‘This situation is worrying, and is largely due to the continued stagnation in economic activity.To maintain credibility, the government should persevere with a realistic plan to reduce the deficit, but if persistently weak growth causes borrowing to overshoot, the UK’s credit rating may be endangered.
‘Given these difficult circumstances, it is important to continue with spending cuts in areas such as welfare, pensions and the size of the civil service.’
Public sector net debt now stands at just over £1 trillion at the end of August 2012, equivalent to 66.1% of gross domestic product.
The Centre for Economics and Business Research said the figures also indicated that Chancellor George Osborne would miss his target for debt to be falling as a percentage of GDP by 2015/16.
CEBR economist Rob Harbron said he also expected the Budget goal to achieve a debt-to-GDP ratio of 71.9% in 2012/13 to be missed. The CEBR is forecasting a 73.1% ratio by the end of this financial year.
Harbron added: ‘With a weak domestic and global economic outlook for the remaining years in this Parliament, ditching the debt-to-GDP ratio target now could save face for the chancellor at the next election, although there would be much short-term embarrassment.
‘We project annual economic growth of just 1.7% in 2016, compared with the 3.0% Office for Budget Responsibility estimate on which the chancellor’s aims are based. Whether the target is explicitly scrapped or not, it is likely that the public sector debt-to-GDP ratio will continue to be rising come the end of this Parliament.’
The ONS also revised down total public sector borrowing estimates for 2011/12. Borrowing is now expected to come in at £119.3bn, £5.7bn lower than the £125bn first reported. The OBR forecast for the year was £126bn.
