British borrowing rockets to record high

Saturday, December 19, 2009
LONDON: Overspending in recession-hit Britain soared to a record in November, official data showed on Friday, highlighting the country’s debt as alarm over public finances in Greece rippled across Europe.

Britain’s public sector net borrowing requirement the Labour government’s preferred measure of public finances hit 20.3 billion pounds (23 billion euros, 33 billion dollars) in November.

The official reading, sharply higher than borrowing of 15.5 billion pounds in November 2008, sparked opposition-party calls for Prime Minister Gordon Brown to mend the public finances, as the nation awaits a general election in 2010.

But the borrowing figure, published by the Office for National Statistics (ONS), was lower than market expectations of 23.0 billion pounds.

“Today’s data underline the precarious situation of the United Kingdom’s public finances,” said Jorg Radeke, an economist at the Centre for Economics and Business Research, an independent consultancy.

“Although, net borrowing remained below expectations in November, monthly data are volatile and borrowing in the ballpark of 20 billion pounds per month cannot be sustainable.”

He added: “It is time to provide a realistic strategy to bring public spending plans back in line with sensible income projections.”

The dilemmas facing governments in curbing overspending and fighting debt mountains are being given greatly increased attention on financial markets because a debt crisis in Greece is straining cohesion in the eurozone.

Britain is not a member of the zone but is a leading economy in the European Union.

Many European governments, including the British administration, are announcing radical spending cuts and tax increases, while trying to keep fragile economic recovery on track and retaining confidence on financial markets so-called crisis exit strategies.

They want to maintain and if possible improve their credit ratings which determine the interest they have to pay savers to lend money to fund the overspending.

Earlier this month, ratings agency Moody’s indicated that Britain and the United States needed to take action on public finances to protect their top-level AAA credit assessments.

Fitch has also warned recently that Britain was the country most at risk of losing its AAA credit rating because of its public finances.

The ONS revealed on Friday that Britain has borrowed 106.4 billion pounds in the financial year which began in April. That was more than double the 49.3 billion pounds recorded at the same stage last year.

Friday’s gloomy data also showed that Britain’s net debt, in terms of a running total, reached a record 844.5 billion pounds in November or 60.2 per cent of Britain’s annual gross domestic product.

“The November public sector net borrowing requirement is the highest monthly figure on record,” added IHS Global Insight economist Howard Archer.

“The only consolation was that it was less than feared and there were signs that the rate of deterioration in the public finances is slowing as the economic downturn eases.”

The dire public finances battered by sliding taxation revenues, soaring unemployment benefits and costly bank bailouts has zoomed to the top of the political agenda in Britain, which faces a general election by next June.

British Prime Minster Gordon Brown’s Labour party is tipped to lose at the hands of David Cameron’s Conservatives, the country’s main opposition.

Some experts warn that net borrowing for 2009/2010 which ends in early April next year could breach the government’s official forecast in the current financial year.

Earlier this month, British finance minister Alistair Darling had forecast that net borrowing would reach a bigger-than-expected 178 billion pounds in 2009/10. That compared with his previous estimate of 175 billion pounds.