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UK’s Budget Deficit Doubled in February

The UK’s budget deficit almost doubled in February due to a drop in tax receipts and increased spending.

According to the Office for National Statistics (ONS), public sector net borrowing, excluding public sector interventions, hit a record for the month of February. It jumped to 15.183 billion pounds last month from 8.875 billion pounds in February 2011. The pound fell immediately after this announcement early in the morning.

The ONS said that the increased borrowing was driven by a 2.7 percent drop in tax receipts on the year, while government spending climbed 8 percent. Income tax alone dropped 12.4 percent on the year in February, while benefit payments rose by 11.2 percent.

This announcement leaves Chancellor of the Exchequer George Osborne little room to meet his full-year goal as he prepares to announce the UK’s annual budget later today.

Opposition suggested that scaling back cuts, which will cost more than 700,000 government jobs, would help to boost the economy. Osborne rejected calls to relax his program of cuts, saying warnings from Fitch Ratings and Moody’s Investors Service that Britain could lose its top credit rating reinforce the need to continue with his program aimed to erase the structural deficit by 2017. Osborne said concessions will be targeted at people on low and middle incomes, paid for by increasing taxes on the wealthy.

With one month of the fiscal year remaining to be reported, the deficit was 110 billion pounds, compared with 118.9 billion pounds in the first 11 months of the previous fiscal year. In November, the Office for Budget Responsibility forecasted that the full-year deficit would be 127 billion pounds.

Later today, Osborne is expected to reveal that government borrowing will fall below 100 billion pounds in the 2012/13 fiscal year for the first time since 2008/09 on a basis of a one-off transfer of assets from the Royal Mail pension fund.

Royal Mail pension fund assets and liabilities are set to be transferred to the government next month. The 28 billion pounds of assets will result in an immediate reduction in the budget deficit, whereas the pension fund’s 37.5 billion pounds of liabilities will only show up in the deficit over the next 20 to 30 years.

Source: Bloomberg [1]

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher [5]

Market Analyst at OANDA [6]
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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