UK Borrowing Higher Than Expected In March

Public sector borrowing in March came in much higher than expected, at £18.2bn, but the Government has still met its target for the full-year.

Figures from the Office for National Statistics (ONS) showed public sector net borrowing, excluding bank bailouts, exceeded the £17.95bn during March the previous year and City forecasts of about £16bn.

It took borrowing for the whole 2011/12 fiscal year to £125.97bn, a whisker below the Government's target of £126bn.

This was down from £136.8bn the previous year, helped by downward revisions in the previous 11 months.

Earlier in the financial year, the Government's spending watchdog, the Office for Budget Responsibility, predicted the borrowing figure would fall to £122bn but it effectively moved the goalposts after the economy worsened.

The reduction in borrowing over the year was made with the help of tax increases, such as the hike in VAT to 20% from 17.5% and cuts in Government spending.

A Treasury spokesman said: "Today's data shows that the forecast for 2011/12 is on track, with public borrowing down by £11bn compared to the previous year.

"This shows that the Government's plan to reduce the budget deficit is working."

The rise in March's borrowing figure was partly driven by a fall of corporation tax from £1.8bn last year to £1.2bn.

It was the biggest rise since November 2010 and helped push the Government's net debt back over the one trillion mark.

At £1.02tr, it is now the equivalent of 66% of Gross Domestic Product, the highest since records began.

Economists say the Government will have a tougher task meeting forecasts to reduce borrowing to £120bn in the current financial year as the economy struggles and unemployment rises, which will hurt its tax revenues and increase benefits payments.

Samuel Tombs, an economist at Capital Economics, said: "March's public finance figures suggest that the trend in the UK's fiscal position is continuing to worsen.

"With the economic recovery continuing to stutter, we think it will become increasingly difficult for the Government to meet its ambitious deficit reduction plans in the coming fiscal year."

Labour's shadow chief secretary to the Treasury, Rachel Reeves, said the latest figures had thrown Chancellor George Osborne's plans into array.

"There do need to be tough decisions on tax, spending and pay.

"But by choking off the recovery, pushing up unemployment and so borrowing billions more to pay for economic failure, cutting spending and raising taxes too far and too fast has backfired.

"And this government's pledge to balance the books by 2015 is now in tatters," she said.

But Alan Clarke, UK economist at Scotia Capital, told Sky News that the public finances were "moving in the right direction."

He said the UK's debt to GDP ratio was not as bad as other European countries such as Italy.

"It's bad, but it's not as bad as it could have been," he added.

The ONS figures showed that central Government spending, excluding payments for benefits and interest, fell slightly for the first time since 1955, to £388.4bn.

They came the day before the ONS reveals whether the UK has avoided a return to recession.

The City expects GDP to increase by 0.1% in the first quarter of 2012, after a 0.3% contraction in the final quarter of 2011.

That would mean the economy has narrowly avoided a technical recession, defined as two quarters of decline in a row.