Public borrowing expected to rise

First published in Business Daily

BRITAIN'S coveted AAA credit rating will come under pressure on Tuesday, with experts predicting more bad news on public finances.

Economists predict public borrowing, excluding financial interventions such as bank bailouts, rose to £15.2 billion in December, compared with a deficit of £14.8 billion last year.

It will be closely watched after an unexpected increase in November, when the requirement leapt to £17.5 billion, up £1.2 billion from last year, after tax receipts were dented by lower energy company profits.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The recent poor public finance data are fuelling high and mounting expectations that at least one of the credit rating agencies will strip the UK of its AAA rating within the next few months."

All three of the major credit ratings agencies now have the UK's AAA rating on negative outlook. But he said that while the loss of the UK's AAA rating would clearly be seen as an embarrassment for the Government, it would only have a limited negative impact for the UK economy.

In his Autumn Statement in December, Chancellor George Osborne acknowledged public finances were taking longer to rectify than planned, and admitted he would be forced to draw out the age of austerity by at least another year.

Philip Shaw, chief economist at Investec, said there was little doubt that the underlying trajectory of Government borrowing was heading in the wrong direction. However, he expects an improvement in December, with tax receipts set to catch up with recent strong rises in employment.

Any further signs of the weakness of the UK economy will fuel speculation that the Bank of England will decide to carry out more asset purchases - also known as printing money. It held off from boosting its £375 billion quantitative easing (QE) this month, after inflation has stubbornly remained at 2.7%. In November public sector borrowing for the year to date was £92.7 billion, excluding a one-off £28 billion boost from the transfer of the Royal Mail pension fund into Treasury ownership, which is 9.9% higher than the same period last year.

Last month, the Office for Budget Responsibility (OBR) said it expected borrowing to be £108 billion in 2012/13, lower than its £119.9 billion March estimate. Public finances will be swelled by assets from the QE programme, which will be transferred to the Treasury, and the Government is also expecting the auction of bandwidth for 4G mobile broadband services to provide a boost.

The news on public sector finances comes days before Gross Domestic Product (GDP) figures are expected to show the economy contracted in the final three months of 2012.

© Press Association 2013

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