Public borrowing rises as UK economy dips

The UK’s austerity plan ran off course in the first two months of the financial year, according to official statistics, as welfare spending increased and income tax receipts were weakened by the feeble economy.

Public sector net borrowing, excluding the effect of financial interventions, was £17.9bn in May, more than economists expected and more than the £15.2bn the government borrowed in the same month last year.

    Last year’s deficit was also revised slightly higher to £128bn.

    Chris Williamson, an economist at Markit, said the figures “cast further doubt on the government’s ability to meet its deficit reduction targets in the current economic environment”.

    The UK is halfway through a seven-year austerity programme to try to close the budget deficit but the economy has flatlined for 18 months and this year fell into a shallow double-dip recession.

    Vicky Redwood, an economist at Capital Economics, said that two months into the fiscal year, borrowing was on course to overshoot the fiscal watchdog’s forecast of £120bn for the year as a whole.

    “The combination of worsening public finances and renewed recession is likely to intensify calls for the government to change tack on its austerity programme,” she said.

    Income and capital gains tax receipts were 7.2 per cent lower in May than the same month a year ago. Meanwhile, spending on benefits was 11.7 per cent higher.

    “Only two months into the fiscal year, it is evident that [George] Osborne is facing a major battle to meet his fiscal target for 2012-13 and is in grave danger of losing it,” said Howard Archer, an economist at IHS Global Insight.

    Net debt was 65 per cent of gross domestic product.

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