UK borrowed less than forecast in September

AP News
Posted: Oct 21, 2011 7:35 AM
UK borrowed less than forecast in September

U.K. government borrowing in September fell by more than anticipated, official figures showed Friday, providing rare good news after a series of downbeat reports.

The Office for National Statistics said public sector net borrowing in September was 14.1 billion pounds ($22.2 billion), down on the 15.4 billion pound shortfall in the same month last year.

September's figure was about a billion pounds better than the market consensus.

The agency also revised its August borrowing figure downward by 2 billion pounds.

The data leaves the government broadly on course to hit its full-year deficit target of 122 billion pounds, providing the economy doesn't deteriorate further.

However, worries persist.

"We doubt that these figures fully reflect the recent slowdown in the pace of economic growth and therefore we continue to expect the trend in borrowing to deteriorate in the second half of the fiscal year," said Samuel Tombs, U.K. economist at Capital Economics.

The statistics agency reported earlier this week that inflation had hit a three-year high of 5.2 percent. Unemployment was up to 8.1 percent in the latest report, while household incomes were growing at less than 2 percent a year; GDP rose just 0.1 percent in the second quarter.

Chris Williamson, chief economist at financial information company Markit, said the government may be forced to cut spending further to meet the borrowing target if the economy gets worse. However, he said this raises the risk that austerity measures "end up driving the deficit higher rather than reducing it."

Concern about sagging growth has prompted the Bank of England to resume a program of buying up financial assets from the banks in the hope of increasing the money supply and getting them to lend more.

Earlier this month, the Bank's Monetary Policy Committee unanimously voted to spend another 75 billion pounds ($118 billion) on the so-called program of quantitative easing. Between March 2009 and January 2010, it bought up 200 billion pounds ($315 billion) of assets.