British public borrowing hits record high in August

21st September 2010, Comments 0 comments

British state borrowing worsened unexpectedly in August to hit a record high for the month, official data showed Tuesday, one month before a major government crackdown on spending.

The public sector net borrowing requirement jumped to 15.3 billion pounds (18.1 billion euros, 23.8 billion dollars) last month, compared with 13.5 billion in August 2009, the Office for National Statistics said in a statement.

That overshot market expectations for borrowing of 13 billion pounds, according to analysts polled by Dow Jones Newswires.

The government's preferred measure of borrowing, which excludes the cost of massive bank bailouts, grew to 15.9 billion pounds in August from 14.1 billion a year earlier.

Higher debt interest payments pushed spending sharply higher last month, according to the ONS.

Britain's Conservative-Liberal Democrat coalition government will meanwhile publish its eagerly-awaited comprehensive spending review on October 20.

The administration is widely expected to deliver deep expenditure cuts as it seeks to slash the huge public deficit and balance the books.

"The government has a massive task on its hands to regain control over the public finances," said Andrew Goodwin, economic advisor to the Ernst & Young ITEM Club.

"We keenly await next month's comprehensive spending review to see how their plans for cutting spending stack up.

"This promises to be the critical juncture for UK fiscal policy, with the government's fiscal reputation hanging on whether it can deliver a credible plan to cut spending."

The Office for Budget Responsibility -- the coalition's independent fiscal watchdog -- has forecast that public sector borrowing will hit 149 billion pounds in the current 2010/2011 financial year.

"If borrowing continues on its current path, then the annual total will more likely be closer to last year's figure of 155 billion pounds," added Capital economics analyst Samuel Tombs.

"August's overshoot (in borrowing) reinforced our view that the government will struggle to achieve the ambitious fiscal tightening set out in the June budget."

And he warned that the government "may therefore need to resort to further tax hikes or additional spending cuts in the not too distant future."

The coalition, led by Conservative Prime Minister David Cameron, inherited a record 154.7-billion-pound deficit from the previous Labour administration which it ousted at a general election in May.

In June, finance minister George Osborne delivered a deficit-slashing emergency budget amid intense concern about sky-high debt levels in Europe.

On Monday, Moody's said Britain had retained its top-level 'Aaa' credit rating, despite the stretched public finances and challenging economic outlook.

The ratings agency added that its stable outlook "is largely driven by the government's commitment to stabilise and eventually reverse the deterioration in its financial strength."

© 2010 AFP

0 Comments To This Article