UK bud­get deficit widens as spend­ing climbs

The Pak Banker - - Front Page -

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.

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