UK borrows less than estimated

Britain posted a smaller budget deficit in July than economists forecast,putting the coalition government on course to...

Written by Bloomberg | Published: August 20, 2010 1:06:42 am

Britain posted a smaller budget deficit in July than economists forecast,putting the coalition government on course to reduce record levels of borrowing this year.

Net borrowing was £3.17 billion ($5 billion),compared with £5.52 billion a year earlier,the Office for National Statistics said in London on Thursday. The median of 14 forecasts in a Bloomberg News survey was for a deficit of £4.8 billion.

Chancellor of the Exchequer George Osborne is preparing to detail £61 billion of cuts to government departments as he seeks to narrow a deficit of 11% of gross domestic product to 2.1% by 2015. Some economists say the scale of the squeeze risks throttling the nascent economic recovery.

“The deficit data has been coming in at least as well,if not a shade better,than the budget projections in June,” said David Tinsley,an economist at National Australia Bank in London and a former Bank of England official. “It does give the government leeway to slowdown or speed up consolidation in the economy.”

Warning that Britain faced a Greek-style debt crisis without drastic action,the UK coalition of Conservatives and Liberal Democrats in June proposed a fiscal sqeeze of £113 billion over five years.

Government bond yields have fallen since the coalition took office in May,and Osborne argues this is providing a significant economic stimulus.

Osborne will announce the results of his spending review on October 20. The OBR,set up to provide independent forecasts for the Treasury,expects the deficit excluding government support for the financial industry to fall to £149 billion from £155 billion a year earlier.

In the first four months,total net borrowing was £42.6 billion,compared with £46.4 billion a year earlier. Revenue rose 8.5% and spending grew 6%.

In July,revenue jumped 10.5%,led by a surge in payments of value-added tax on sales and tax on company profits. Government spending rose 5.7%,with growth in net social benefits limited to 0.7%.

There was a public-sector cash surplus of £4.1 billion in July. Economists predicted a 900-million shortfall. The central-government cash surplus,the measure the Treasury says has most closely indicated gilt sales since the government took control of four British banks in 2008,was £3.6 billion. Net debt slipped to 63.7% of GDP from 63.9% of GDP.

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