Britain reports record public deficit as cuts loom

20th October 2010, Comments 0 comments

Britain's public deficit hit a record high level last month, official data showed, as the government unveiled massive spending cuts on Wednesday to reduce the country's debt pile.

State borrowing hit a record for September, although the coalition government remains on course to meet its net borrowing target of 149 billion pounds (169 billion euros, 234 billion dollars) for 2010/2011, figures showed.

Britain is not facing a Greek-style bailout but its recovery from recession is far from secure, leaving critics to suggest that the government's vast cost cutting programme risks sending the country back into a downturn.

Sovereign debt markets are watching with signs of impatience at how governments plan to correct their public finances, and governments are aware that they need to avert any loss of confidence in the quality of their bonds.

Following the British government's announcement that it is slashing nearly half a million public sector jobs over four years, the pound and London's stock market traded mixed, while government bond prices were steady.

"We should remember that unless we deal with this record budget deficit decisively many more jobs will be in danger -- in both the private and the public sector," Finance minister George Osborne told parliament on Wednesday.

Ahead of the cuts announcement unveiled by Osborne, the Office for National Statistics said Britain's public sector net borrowing requirement (PSNBR) jumped to 16.2 billion pounds last month -- a record for September.

That compared with borrowing of 15.5 billion pounds in September 2009. Analysts had forecast a rise to only 15.7 billion pounds according to a survey by Dow Jones Newswires.

Britain's government is being forced to borrow massively as the recent recession slashed tax revenues and as the taxpayer was forced to rescue banks left on the brink of collapse by the global financial crisis.

The country suffered a record net borrowing of 154.7 billion pounds in 2009/2010, which has led Prime Minister David Cameron's Conservative-Liberal Democrat government to plan massive cuts to government budgets.

Howard Archer, economist at consultancy group IHS Global Insight, said Osborne may still be able to meet his target of 149 billion pounds in 2010/11 -- "although much will depend on how well economic growth holds up over the rest of the financial year."

"If the current rate of overall improvement was replicated over the whole fiscal year, the PSNBR would come in at 148 billion pounds," Archer said.

The International Monetary Fund has strongly backed the plans for an aggressive reduction of Britain's record high public deficit, describing swift measures to curtail state spending as an "essential" weapon in reducing debt.

Business leaders have also backed the cost-cutting programme but the opposition Labour party and trade unions argue that cuts that are too steep risk stifling recovery and even helping to create a double-dip recession.

And minutes from the Bank of England's last monetary policy meeting, published on Wednesday, raised expectations that the central bank will soon pump billions of pounds of new money into the economy to aid recovery.

Minutes of the October rates meeting showed that one member of the Bank's nine-strong Monetary Policy Committee -- Adam Posen -- called for a 50 billion-pound hike in the so-called Quantitative Easing programme (QE).

A three-way split emerged as policymaker Andrew Sentance called for a quarter-point rate hike to record low British interest rates to calm inflation.

The remaining seven members called for no change to either rates, which stand at 0.50 percent, or QE.

© 2010 AFP

0 Comments To This Article