UK budget deficit widens as spending climbs

LONDON

Britain's budget deficit unexpectedly widened in October as government spending surged and the economic slump hit tax revenue from company profits.

The shortfall excluding government support for banks was 8.6 billion pounds ($13.7 billion) compared with 5.9 billion pounds a year earlier, the Office for National Statistics said in London today. The median of 25 estimates in a Bloomberg News survey was for a deficit of 6 billion pounds. Spending jumped 7.4 percent while tax income climbed just 1.8 percent. The figures are a blow for Chancellor of the Exchequer George Osborne as he prepares to announce new economic forecasts in his Autumn Statement on Dec. 5. The deficit is on course to overshoot the 120 billion pounds forecast by the Office for Budget Responsibility in March for the full fiscal year.

With the euro-region debt crisis hanging over recovery prospects, the outlook for public finances is "still clearly highly challenging," Howard Archer, an economist at IHS Global Insight in London, said before the report. Osborne is "under severe pressure to adjust the mix of his spending plans to find more money for capital expenditure to help boost economic activity."

In a separate report today, the Bank of England said policy makers voted 8-1 to stop expanding their bond-purchase program this month as the majority said uncertainty among consumers and companies may be affecting the impact of quantitative easing on the economy. The pound was little changed against the dollar after the releases and was trading at $1.5921 as of 9:51 a.m. in London, unchanged on the day.

October is a key month for the public finances as quarterly payments of tax on company profits pour in. Corporation tax receipts fell 9.5 percent from a year earlier, highlighting the impact of weaker-than-forecast economic growth on earnings.

Spending was boosted by government departments and higher spending on welfare, the statistics office said. In the first seven months of the fiscal year, the deficit climbed to 73.3 billion pounds from 68.3 billion pounds a year earlier. Those figures exclude a one-time boost from the 28 billion-pound transfer of Royal Mail Group Ltd. pension assets to the public sector. On current trends, the fullyear deficit is projected to be 125 billion pounds, although it may be higher as government spending usually picks up toward the end of the year.

A cash measure showed the public finances in surplus by 14.7 billion pounds. This was due to the financial position of publicly-controlled banks. The central government cash deficit was 2.87 billion pounds. Net borrowing including financial interventions was 6.5 billion pounds.

Osborne is due to make his statement to Parliament after receiving revised fiscal and economic forecasts from the OBR. While a weaker-thanpredicted economy has hit taxes government revenue rose just 0.4 percent in the first seven months --, austerity measures have kept spending in check. Government spending so far this year has risen 2.3 percent, with expenditure by departments increasing just 1.7 percent.

"The economy is healing, but it still faces many challenges," the Treasury said in an e-mailed statement. "These numbers illustrate that, but also show the government's plans to bring spending under control are on track for the year."

The OBR will also say whether Osborne has a realistic chance of meeting his target to start reducing debt as a share of the economy by 2015.