UK public sector debt above 60 percent of GDP in February, but still below expectations

UK public sector debt climbs above 60 pct of GDP

LONDON — Public sector debt in the United Kingdom climbed above 60 percent of GDP in February as government agencies borrowed another 12.4 billion pounds ($19 billion), the Office for National Statistics said Thursday.

The figure, however, was around 2 billion pounds lower than expected, due to a boost in tax collections, and analysts said it offered Treasury Chief Alistair Darling some scope to announce sweeteners in next week’s budget, just ahead of a general election.

Furthermore, the January deficit was revised sharply lower— to 43 million pounds from the 4.3 billion pounds which shocked markets last month — because of higher estimates for tax revenues and, to a lesser extent, revisions to net investment.

The February borrowing raised total net debt to 857.7 billion pounds, equal to 60.3 percent of gross domestic product, up from 59.9 percent in January and from 50.5 percent a year earlier.

For the financial year to date (April-February), the public sector current budget deficit is 94.7 billion pounds compared with 37.4 billion pounds a year earlier. Net borrowing for the fiscal year to date is 131.9 billion pounds, up from 66.5 billion pounds a year earlier.

The statistics agency said tax receipts in February were 42.6 billion pounds, up from 41.1 billion pounds a year earlier, boosted by the hike in value-added taxes from 15 percent to 17.5 percent on Jan. 1.

Jonathan Loynes, economist at Capital Economics, said the February figures were a boost for Darling as he prepares his pre-election budget.

“The figures leave a total deficit for the first 11 months of the year of 132 billion, suggesting that Mr. Darling may now hit or even undershoot his full-year forecast — on this measure — of 170 billion pounds.

“As such, he now looks likely to have a little wriggle room in the budget to either cut borrowing or fund a few pre-election sweeteners. We suspect that he will choose the latter. Make no mistake, though, a prolonged and painful fiscal squeeze still lies ahead,” Loynes said.

The government could also take heart from Wednesday’s report that unemployment in the three months through January declined to 7.8 percent from 7.9 percent in the previous three months — the first quarterly drop in two years. However, the number of people in employment also declined, a sign that a significant number of people have simply dropped out of the job market.

“February’s public sector data are still pretty awful by any norm and do not materially alter the fact that the public finances are still in one almighty mess that will need extended corrective action regardless of how quickly it is started,” said Howard Archer, economist at IHS Global Insight.

The debate between the governing Labour Party and the opposition Conservative Party is about how hard and how fast the debt must be reduced. An election must be held by early June, with early May the most likely time.

Prime Minister Gordon Brown and Darling say drastic cuts in spending could wreck the nascent recovery, which began weakly in the fourth quarter with a gain of 0.3 percent in GDP.

Conservative leader David Cameron, with backing from much the business community, has called for swifter action.

The British Chambers of Commerce on Thursday demanded radical action within 90 days of the election, including a detailed plan for spending cuts, a freeze in public sector wages and higher sales taxes.

The BCC also wants the government to cancel a planned increase in employer contributions to the National Insurance program.

Other economic data released Thursday was cautiously upbeat.

The Society of Motor Manufacturers and Traders reported that car production in February was 63 percent higher than a year earlier and commercial vehicle output was up 74 percent.

Car production has been boosted by a government-supported program of discounts for buyers who trade in cars more than 10 years old. That program ends this month.

The Council of Mortgage Lenders said gross mortgage lending of 9.2 billion pounds in February was up 6 percent from the unusually low level in January, but 6.7 percent below the February 2009 total.

Paul Samter, the Council’s economist, said the housing market is unlikely to surge in the next few months.

“The need for the authorities to address fiscal deficit will inevitably slow the economy. At the same time the funding markets, while certainly better than a year ago, remain difficult and will likely limit the flow of available housing finance,” Samter said.