UK budget deficit still on course for undershoot
Simon Ward
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Public sector borrowing was higher than expected in June, but recent figures remain consistent with an undershoot of the Budget forecast for 2010-11.
The Office for Budget Responsibility (OBR) projects a fall in net borrowing, excluding the temporary effect of financial interventions, from £154.6 billion in 2009-10 to £149 billion this year. Attempting to adjust for seasonal factors, borrowing averaged £12.25 billion per month between April and June, or £147 billion annualised – see chart. The OBR forecast, therefore, implies no further improvement – even a small worsening – over the remainder of 2010-11.
This is unlikely because, first, the benefits of economic recovery should grow as the year progresses and, secondly, the coalition has announced spending cuts and tax rises worth £8.1 billion in 2010-11 that have yet to be reflected in the monthly numbers. Put differently, even assuming no impact from the recovery, these measures together with the recent run-rate imply borrowing of £139 billion this year (i.e. £147 billion minus £8 billion), £10 billion less than the OBR's forecast.
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