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U.K. Logs Record Budget Deficit For April

ukfinance 052110

The U.K. budget deficit hit its biggest level for April on record, while the borrowing figure for last year was sharply revised lower due to higher tax receipts. Although the revision in the deficit for last year is good news for the newly elected government, huge fiscal tightening is seen going forward.

Public sector net borrowing was GBP 10 billion in April compared to GBP 8.8 billion in April 2009, a report published by the Office for National Statistics showed Friday. Consensus forecast for April was GBP 10.9 billion.

The net borrowing forecast for 2010/11 is GBP 157 billion. Total borrowing for 2009-10 was revised down by more than GBP 7 billion to GBP 145 billion. ONS said the revision was largely due to higher tax receipts. Excluding financial interventions, net borrowing was lowered to GBP 156 billion from around GBP 163 billion.

Without a deficit-reduction plan, the U.K. may still be vulnerable, said David Kern, chief economist at the British Chambers of Commerce. "The deficit in the financial year to March was smaller than was estimated in the Budget, which should help the U.K. to maintain its AAA credit rating. However, there is no room for complacency," he added.

The forecasts for borrowing in future years are likely to increase significantly, if, as is very likely, the new Office for Budget Responsibility takes a less rosy view of the outlook for the economy than the last Government, said Jonathan Loynes at Capital Economics.

New Prime Minister David Cameron said his coalition government agreed to have GBP 6 billion of public spending cuts this fiscal year. The emergency Budget due on June 22, is likely to see plans for sizeable tax increases, the economist noted.

In a speech to the Confederation of British Industry late Wednesday, the new Chancellor of the Exchequer George Osborne said he plans to cut corporate tax and simplify the system. He also intends to raise personal income tax allowance in the budget.

At the end of April 2010, public sector net debt was GBP 893.4 billion, which was equivalent to 62.1% of GDP. This was larger than the GBP 755.4 billion debt or 53.9% of GDP as at the end of April 2009.

The public sector net cash requirement was GBP 8.8 billion, a GBP 4 billion higher net cash requirement than in April 2009, when there was a net cash requirement of GBP 4.9 billion. PSNCR stood above the expected GBP 7 billion.

The public sector current budget was in GBP 9.3 billion deficit in April. This was bigger than the GBP 7.6 billion shortfall recorded during the same period of last year.

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