| UK public borrowing on track, but government debt challenge remains |
| 24.01.12 12:55 | |
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Public sector borrowing was marginally better than expected in December. PSNBx and PSNB were both a little more than £1bn lower than the consensus forecast, with the former at £13.7bn (consensus: £14.8bn, BarCap: £15.1bn) and PSNB at £10.8bn (consensus: £12.1bn, BarCap: £10.9bn). The PSNCR was £22.9bn (consensus: £19.0bn, BarCap: £21.9bn). Current receipts continue to be stronger than this time last year. Total receipts were £2.9bn higher than in December 2010 and for the fiscal year so far receipts were £18.1bn higher. The monthly increase was broadly based with an increase of £1.1bn reported in VAT revenues, a £0.5bn increase in income and capital gains tax receipts and compulsory social contributions were about £0.5bn higher than this time last year. However, as consumer spending is expected to remain weak for the remainder of the fiscal year and labour market conditions are also expected to deteriorate further, the improvement in revenues relative to last year is likely to lose momentum during the last quarter of the fiscal year. Total current expenditure was marginally lower than this time last year, by £0.5bn. The picture was more mixed here, with increases reported in interest payments (up £0.5bn) and expenditure on net social benefits (also up £0.5bn), but these were more than offset by a fall in the 'other' category, which dropped by £1.5bn (which includes central government spending). Central government spending is expected to be higher towards the end of the fiscal year, however, and OBR has warned that government departments are planning to backload spending this year to a larger extent than in previous years. Public sector borrowing data for the fiscal year to date indicates the government is broadly on track to hit its fiscal target for borrowing of £127bn and is making some progress towards cutting the deficit (which was about £136bn in 2010-11). However, despite the progress of recent months, the near-term outlook for public debt is not rosy. General government gross debt (which is more internationally comparable than the public sector net debt measure favoured by the UK government) currently stands at around 76% of GDP. Both we and the OBR expect it to rise steadily over the next three years, breaching the critical 90% level before declining only gradually (see chart). This highlights the fact that the government still has a significant challenge ahead if it is to put a brake on the rapid increase in the debt to GDP ratio and achieve its target of starting to cut this ratio by 2015-16. Rating agencies have cited 90% as a debt ratio a triple-A country would be expected to breach only temporarily, if at all. Although not under immediate threat, the UK's triple-A rating is far from assured. source: BarCap |
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