Sunak spree fails to erase slump fears

BRITAIN’S public sector finances deteriorated sharply in February, with official borrowing for the month potentially more than quadrupling to £2 billion, economists fear.

On Friday the Office for National Statistics is expected to say that Government borrowing in February shot up from £471 million to as much as £2billion. Normally the last few months of the financial year are strong for the Exchequer but with the economy struggling, revenues are likely to be hit.

Capital Economics chief UK Economist Paul Dales explained: “February usually sees strong payments on bonuses but December’s earnings figures showed bonuses were 5.1 per cent lower than last year.

“The recent weakness in the economy is likely to have weighed on self-assessment tax receipts.”

He added that a “sharp rise is on the cards” for official borrowing, after Chancellor Rishi Sunak last week unveiled a £175 billion spending spree, as well as a £30 billion package to fight off the economic effect of the coronavirus.

Samuel Tombs, chief UK economist, at Pantheon Macroeconomics, agreed: “Once we take into account the coronavirus fighting measures announced by the Chancellor, it looks like the deficit will hit 3 per cent of GDP for this coming financial year, versus 2 per cent now.

“That’s a huge leap, the biggest since the global financial crisis and in future years it will likely stay around there.”

The surge in official borrowing comes as the already sagging economy struggles to cope with disruption caused by the coronavirus, with many observers now expecting the UK to fall into recession. Growth had already ground to a halt during the fourth quarter due to the slowing global economy, Brexit uncertainty and subdued consumer spending.

Investec chief economist Philip Shaw said: “All forecasts are up in the air and so much could change over the next three to four weeks.

“The question is what kind of recovery [after the downturn] we could see, it might be a V-shape or, God forbid, an L-shape, which means no recovery.”

On Tuesday the ONS will publish the latest employment data, which could show Britain’s strong run of jobs growth is coming to an end.

Although the unemployment rate is forecast to remain at 3.8 per cent, the number of additional people in work is tipped to fall to 140,000, down from 180,000.