Lower borrowing fails to lift Treasury gloom

By Angela Monaghan

Published: 11:42PM GMT 13 Mar 2010

Figures published on Thursday by the Office for National Statistics are
expected to show that the Government borrowed £14bn in February, £5bn more
than the £9bn it borrowed in the same month last year.

However, despite the higher level, economists said it would leave the
Chancellor well-positioned to undershoot his full-year borrowing projection
of £178bn, announced in the 2009 pre-Budget report (PBR) in December.

"Recent out-turns have been pointing to a better year-end fiscal deficit
than forecast by the Treasury in the PBR. Our February borrowing forecast
assumes the recent trend of improvement in non-revenue intensive months
continues," said Allan Monks, economist at JP Morgan.

Part of the reason for the expected undershoot is the slower-than-expected
growth in UK unemployment, which would mean the Government's related benefit
pay-outs have been lower than projected, and tax revenues from employment
better maintained.

However, economists said it would not disguise the scale of the challenge over
the deficit which faces Britain over the coming years.

"Even if the rate of deterioration in the public finances does show
evidence of moderating in February, the data will hardly provide the most
appetising of backdrops for Alistair Darling to present his Budget on 24
March," said Howard Archer, chief UK economist at IHS Global Insight.

Ratings agencies over recent months have warned that if sweeping action is not
taken to reduce the deficit, Britain's AAA rating is at risk.

Michael Saunders, economist at Citigroup, said the Chancellor was likely to "duck"
the challenge of providing a detailed plan in the forthcoming Budget.

"The Chancellor will not deny the need to shrink the fiscal deficit over
the medium-term. But, he will not accelerate the pace of tightening or aim
for greater medium-term tightening than shown in the PBR."

Economists have warned that medium-term Treasury projections are at risk
because they are based on overly-optimistic growth forecasts.

Minutes of the March meeting of the Bank of England's Monetary Policy
Committee to be published on Wednesday, are expected to reflect a "wait
and see" approach as it awaits further evidence of whether the fragile
recovery that began in the final quarter of 2009 will be sustained.

The MPC voted to maintain its stock of asset purchases through its
quantitative easing programme at £200bn, and to leave interest rates on hold
at 0.5pc. The minutes are expected to show the vote was unanimous.

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