Budget deficit in UK less than expected as tax take climbs
The UK had a smaller budget deficit in February than economists forecast, as tax income climbed at the fastest pace in almost two years, adding to evidence that the economic recovery is strengthening.
The £12.4bn (€14bn) shortfall compares with £8.8bn a year earlier, the UK Office for National Statistics said. Economists had expected a £14bn deficit, according to a Bloomberg News survey.
"There is going to be a general improvement but we are going to have to wait until March when departments will spend up to their limit," said David Owen, an economist at Jefferies International Ltd in London. "I don't see enough of a cyclical recovery to help the public finances. Growth is still weak, particularly if you exclude government spending."
The figures show central British government spending rose 15pc, while tax receipts gained 3.6pc. The increase in revenue was the third in the past four months and the largest since April 2008. VAT receipts rose by almost a third from a year earlier.
Revisions to tax receipts in past months mean net borrowing for the fiscal year to date is £2.9bn lower than previously thought. The figures provide a boost for the Labour government less than a week before chancellor of the exchequer Alistair Darling presents his final budget before the British election.
With one month of the current fiscal year remaining, the deficit stood at £132bn, prompting some economists to predict the gap for the full year will be lower than the £170bn forecast in the December pre-budget report.
A treasury spokesman said the figures were broadly in line with the pre-budget forecasts and continued to show strong growth in spending, reflecting government support for the economy.
The debate over the public finances intensified this month when Moody's Investors Service said Britain had moved "substantially" closer to losing its top credit rating and the European Union warned the UK government would miss a 2015 deadline to reduce the deficit to 3pc of GDP without deeper cuts.
Mr Darling will map out an economic strategy in his budget on March 24 based on pledges to maintain government support for the economy as long as the recovery remains fragile.
His deficit-cutting plans involve a £38bn spending squeeze starting in 2011 and £19bn of tax increases which will mostly be in place from April. Another £25bn is due to come from economic growth. (Bloomberg)