Britain's deficit in surprise fall

18th June 2010, Comments 0 comments

The British government's public deficit surprisingly fell in May, official data showed Friday, but the state remains on course to unveil huge spending cuts in next week's emergency budget.

The country had a public deficit of 16 billion pounds (19.2 billion euros, 23.8 billion dollars) in May, according to new official data.

The public sector net borrowing requirement, the government's preferred measure of public finances, compared with a deficit of 17.4 billion pounds in May 2009, the Office for National Statistics (ONS) said in a statement.

Analysts had meanwhile forecast borrowing to shoot up to 19.5 billion pounds last month, according to analysts polled by Dow Jones Newswires.

In addition, borrowing in April was revised sharply down to 8.3 billion pounds, due to higher-than-expected taxation revenues.

The news come ahead of next Tuesday's emergency budget from Chancellor of the Exchequer George Osborne, who is expected to unveil big spending cuts and tax hikes as the overall public deficit remains extremely high.

Britain's new fiscal watchdog the Office for Budget Responsibility this week forecast state borrowing to reach 155 billion pounds in the year to March 2011.

Britain's public deficit had rocketed to a record-high of 156 billion pounds in the 2009/10 fiscal year that ended in March.

"May's monthly public finance figures continue the recent run of slightly better-than-expected news on the fiscal position," said Capital Economics senior Britain economist Vicky Redwood.

"The big picture of course is that borrowing remains extremely high and additional measures to reduce the deficit will be required in next week's budget.

"Indeed, the government appears keen to act sooner rather than later... We expect tax rises and spending cuts adding up to perhaps 20 billion pounds per annum to be announced next Tuesday."

The government had announced plans on Wednesday to axe or suspend projects planned by the former Labour government that were set to have cost about 11.0 billion pounds.

The coalition had already announced plans in May to cut spending by about 6.2 billion pounds in 2010/11.

Investec economist Philip Shaw said that the better-than-expected May borrowing data would not prevent Osborne from delivering a tough austerity budget on Tuesday.

"Does this detract from the case for a big fiscal tightening in next week's budget? The answer is clearly no," Shaw said.

"While recent data have been mildly encouraging, UK borrowing remains unsustainably high and a big squeeze in government spending, probably reinforced by tax increases, remains fully justified."

© 2010 AFP

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