UK Posts a Larger Budget Deficit Than Forecast

Britain posted a larger budget deficit than economists forecast in May, as the recession decreased tax revenues and government spending increased.

According to the Office for National Statistics, the deficit, which excludes government support for banks, was 17.9 billion pounds compared with 15.2 billion pounds the previous year. Spending and revenue increased 7.9 and 1.6 percent respectively, whereas income tax receipts fell 7.3 percent.

In the first two months of the fiscal year, the shortfall widened to 28.4 billion pounds from 24.5 billion pounds in the year-earlier period. The figures exclude the 28 billion pound transfer of Royal Mail pension fund assets in April

The deficit in the fiscal year that ended in March was revised up to 127.6 billion pounds from a previously estimated 124.4 billion pounds. Net debt rose to 1.01 trillion pounds in May, which is
equivalent to 65 percent of GDP.

The UK government is being criticised for pushing the country into a deeper recession by freezing public-sector wages, cutting tens of thousands of jobs and squeezing billions of pounds from welfare spending. Furthermore, with the euro zone debt crisis becoming worse, many economists express doubts on whether the government can achieve its goal of cutting the deficit to 120 billion pounds in the current fiscal year.

Source: Bloomberg

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Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.