Bloomberg News

U.K. Posts Larger-Than-Forecast Deficit as Slump Hits Taxes

June 26, 2012

Chancellor of the Exchequer George Osborne

The return to recession has undermined support for the government, with Chancellor of the Exchequer George Osborne’s personal rating this month slipping below that of his opposition Labour counterpart Ed Balls for the first time as pessimism over the U.K. economy grew. Photographer: Chris Ratcliffe/Bloomberg

Britain had a larger budget deficit than economists forecast in May as the recession depressed tax receipts and government spending surged.

The shortfall, which excludes government support for banks, was 17.9 billion pounds ($28 billion) compared with 15.2 billion pounds a year earlier, the Office for National Statistics said in London today. Economists forecast a deficit of 14.8 billion pounds, according to the median of 16 estimates in a Bloomberg News survey. Spending jumped 7.9 percent and revenue rose 1.6 percent. Income-tax receipts fell 7.3 percent.

The figures may provide ammunition to the opposition Labour Party, which says the government is making the recession worse by trying to cut the deficit too quickly. With the euro-region debt crisis intensifying, the data cast doubt on whether the government can achieve its goal of cutting the deficit to 120 billion pounds in the current fiscal year.

“The deficit is going to be higher purely on the basis that the economy is going to be weaker,” said George Buckley, chief U.K. economist at Deutsche Bank AG in London. “It’s not impossible that we get deficit that is 7.5 billion pounds higher and that growth is flat for the whole year.”

The pound stayed stronger against the dollar after the report and was trading at $1.5618 as of 9:40 a.m. in London, up 0.3 percent on the day.

Deficit Pledge

Prime Minister David Cameronand Chancellor of the Exchequer George Osborne have staked their reputations on all but eliminating the budget deficit, currently 8.4 percent of gross domestic product, by 2017.

In the first two months of the fiscal year, the shortfall widened to 28.4 billion pounds from 24.5 billion pounds in the year-earlier period. The figures exclude the 28 billion-pound transfer of Royal Mail pension fund assets in April. Revenue rose 2.1 percent and spending climbed 3.7 percent.

The Treasury said in a statement the government is committed to dealing with the deficit and that it is too early to draw conclusions about borrowing in the fiscal year as a whole.

The deficit in the fiscal year that ended in March was revised up to 127.6 billion pounds from a previously estimated 124.4 billion pounds. Net debt climbed to 1.01 trillion pounds in May, or 65 percent of GDP.

A cash measure showed the public finances in surplus by 4.4 billion pounds in May. A deficit of 4 billion pounds was forecast.

Opposition Attack

The Conservatives and their Liberal Democrat coalition partners made erasing the structural deficit their key policy objective after borrowing swelled to 11.3 percent of GDP in the aftermath of the financial crisis and recession.

Labour says the cuts, not the euro-region crisis, are to blame for pushing the economy back into recession as the government freezes public-sector wages, axes tens of thousands of jobs and squeezes billions of pounds from welfare spending.

The return to recession has undermined support for the government, with Osborne’s personal rating this month slipping below that of his Labour counterpart Ed Balls for the first time as pessimism over the U.K. economy grew.

To contact the reporters on this story: Fergal O’Brien in London at fobrien@bloomberg.net;

To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net


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