Oct. 19 (Bloomberg) -- Britain’s budget deficit may be 16 billion pounds ($25 billion) higher than planned by April 2013 as the fallout from Europe’s debt crisis hits economic growth, independent forecasts published by the Treasury today showed.
The shortfall will be 128.1 billion pounds in the fiscal year through March 2012, 6.1 billion pounds more than the Office for Budget Responsibility predicted in March, according to the average of 29 forecasts made over the past three months. Borrowing in the following fiscal year will be 9.7 billion pounds more than the 101 billion pounds planned, the survey showed.
Prospects for output, meanwhile, fell by the most this year. Economists predicted growth of just 1 percent in 2011, down from 1.2 percent seen last month and March’s 1.7 percent OBR forecast. The figures paint a picture of deepening pessimism as Chancellor of the Exchequer George Osborne prepares to present updated forecasts from the budget office on Nov. 29.
“Economic growth is likely to fall considerably below what they were expecting,” Samuel Tombs, an economist at Capital Economics, a London-based consultant which had the fourth most pessimistic borrowing forecast for this year supplied to the Treasury, said in a telephone interview. “That’s why borrowing will be higher, not just this year but in future years.”
Osborne is facing criticism that his plan to eliminate the structural deficit by 2015 is acting as a brake on an economy teetering on the verge of a second recession in three years. The Labour opposition says his plan will result in a bigger deficit because it will hurt growth, pushing up welfare costs and sapping tax receipts.
Prime Minister David Cameron defended the cuts in Parliament today and said Labour’s “crazy plan” to slow the pace of deficit reduction would add 23 billion pounds to borrowing this year and almost 100 billion pounds by the end of the current parliament in 2015.
“There is not a single country in Europe that thinks you deal with your debts by adding to your debts,” he told lawmakers.
Sixteen of the 29 forecasts in the Treasury survey were received in October. These are more pessimistic than the three- month average, showing growth of 0.9 percent this year and 1.3 percent in 2012.
Cameron and Osborne say their strategy relies on getting the Bank of England to stimulate demand. The central bank raised the ceiling for so-called quantitative easing to 275 billion pounds from 200 billion pounds on Oct. 6.
Bank of England Governor Mervyn King said yesterday the euro-region debt turmoil and slowing world economy had delayed the recovery. The Institute for Fiscal Studies warned that U.K consumer spending may not return to its pre-recession levels until at least 2013.
U.K. households are facing the tightest squeeze on their incomes since the 1970s, a point underlined yesterday when the government said inflation hit a three-year high of 5.2 percent in September.
The pickup in inflation will also add almost 2 billion pounds to planned welfare spending in the next fiscal year, according to the IFS, as the figure for September is used to calculate increases to state benefits. The OBR, whose forecasts are used by the Treasury, had predicted September inflation of 4.3 percent.
The budget deficit in September was probably 15 billion pounds, little changed from a year earlier, according to the median of 17 estimates in a Bloomberg News survey. That would take the shortfall in the first six months to 66.5 billion pounds. The Office for National Statistics will release the data at 9:30 a.m. on Oct. 21. The OBR forecast a deficit for the fiscal year as a whole of 122 billion pounds.
--Editors: Andrew Atkinson, Eddie Buckle
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