British data sparks hope of lower annual public deficit

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British state borrowing improved slightly in July, official data showed on Thursday, sparking hope that the deficit will be lower than expected in the current financial year, analysts said.

The public deficit, given as the public sector net borrowing requirement (PSNBR), the government's preferred measure of the public finances, stood at 3.8 billion pounds, the Office for National Statistics said in a statement.

The reading, equivalent to 4.6 billion euros or 5.9 billion dollars, was in line with market expectations and was lower than 6.1 billion pounds in July last year.

Data for the month is traditionally boosted by higher taxation revenues but a record-length recession forced Britain to borrow in July 2009 for the first time in 13 years.

British finance minister George Osborne warned on Tuesday that his coalition government will pursue its course of deep public spending cuts as it seeks to slash the deficit and balance the books.

The Conservative-Liberal Democrat coalition inherited a record 154.7-billion-pound deficit from the previous Labour administration which it ousted at a general election in May.

The Office for Budget Responsibility -- the government's independent fiscal watchdog -- has forecast that public sector borrowing would hit 149 billion pounds in the current financial year to March 2011.

"The public finance figures are ... a pleasant surprise," said Vicky Redwood, senior UK economist at the Capital Economics consultancy on Thursday.

"If the trend so far this fiscal year continues, borrowing in 2010/2011 as a whole should slightly undershoot the OBR's forecast of 149 billion pounds by 3.0 billion pounds or so."

However, she warned: "This still leaves borrowing at extremely high levels and does not reduce the need for a massive fiscal tightening over the coming years."

Osborne, speaking at a London conference on Wednesday, said that cutting the deficit was the only "fair" action to take.

The Chancellor of the Exchequer's speech was aimed at preparing the ground for a comprehensive spending review in October, when the government is expected to identify more sweeping cuts in public spending.

"Economic stability now depends on a credible plan to restore the public finances to a sustainable path," he added.

In June, Osborne had delivered an emergency budget to cut spending and lift taxation, amid intense concern about soaring state debt levels in Europe.

David Kern, chief economist at the British Chambers of Commerce, added that the public finances were improving but remained in a fragile state.

"These figures show an improvement compared to a year ago. They also highlight the UK's massive deficit and the major challenge in restoring stability to the public finances," Kern said.

"British businesses understand that painful measures will be needed over the next few years to reduce the country's unsustainable deficit and they support the government's focus on spending cuts rather than tax rises."

© 2010 AFP

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