LONDON (Reuters) - Britain’s budget deficit fell slightly last year, official data showed on Tuesday, saving the country’s embattled finance minister some embarrassment as criticism of his austerity program mounts.
The Office for National Statistics said public borrowing, excluding some effects of bank bailouts and a one-off Royal Mail pension transfer, was 114.2 billion pounds in the 2012-13 tax year, equivalent to 7.37 percent of national output.
This was down from 120.9 billion pounds or 7.93 percent of output in 2011/12, and in line with the forecast last month by Britain’s budget watchdog, the Office for Budget Responsibility.
A tougher measure of borrowing - which in addition strips out cash transfers from the Bank of England allowed under European Union statistical rules - also fell marginally on the year.
Nonetheless, Britain’s budget deficit is still one of the highest among major advanced economies as the country struggles to deal with the legacy of the financial crisis.
“The Chancellor just made it in under the OBR’s forecast, albeit by the skin of his teeth,” said Victoria Clarke, an economist at Investec.
“The bigger test will be if he can continue to meet the forecasts for the years ahead, and we think it’s looking vulnerable because of the weakness of the euro area, which could decrease tax revenues and mean higher spending pressures.”
The government welcomed the data as a sign that its policies were working. “Though it is taking time, the government is fixing this country’s economic problems,” the Treasury said in a statement, citing a one-third reduction in the budget deficit since 2010 and the creation of a million-and-a-quarter new private sector jobs.
There was little immediate market reaction to the data, with many investors more focused on first-quarter gross domestic product data due on Thursday, which will show whether the economy has slipped back into recession.
The figures follow a difficult seven days for finance minister George Osborne. His Conservative-led coalition’s flagship austerity policy has come under increased scrutiny from the International Monetary Fund, and a second major ratings agency has stripped Britain of its triple-A status.
The IMF - previously a supporter of Osborne’s tough approach - has said that weak growth means he may need to rethink the pace of deficit reduction, something the opposition Labour Party has been urging for a long time.
Osborne is already off track on his deficit reduction plan, compared to what he intended when he became finance minister in May 2010. He originally aimed to eliminate Britain’s underlying budget deficit by 2014-15, something which now looks unlikely before 2016-17.
This slippage has been largely due to weak economic growth which has hurt tax revenues and pushed up benefits spending.
How much of this weak growth is due to the knock-on effect of turmoil in the euro zone, Britain’s main export market, and how much is down to a bigger-than-expected drag from austerity is disputed.
Data for March alone showed that public borrowing excluding financial sector interventions totaled 15.142 billion pounds, down from 16.694 billion pounds a year ago and just below economists’ forecasts of 15.5 billion pounds.
But the UK Debt Management Office revised up its government bond issuance plans for the coming financial year by 4.7 billion pounds to 155.7 billion pounds, after a volatile cash measure of British borrowing turned out higher than expected in March
Britain’s total net public debt, excluding the direct costs of bailing out the country’s banks, is still much higher than before the financial crisis at a record 1.1858 trillion pounds or 75.4 percent of GDP.
Editing by Catherine Evans