In December, George Osborne made great play out of the fact that the Treasury’s independent forecaster expected borrowing to decline in 2012/2013, despite the collapsing economy. However, public finance figures to be published by the Office for National Statistics on Wednesday are expected to put the target out of reach.
“Excluding helpful one-off factors, borrowing will probably now be projected to rise in 2012/13 compared to last year’s level,” Vicky Redwood, UK economist at Capital Economics, said. “It will look likely the Office for Budget Responsibility will have to revise up its forecast next month.”
At the Autumn Statement in December, the OBR forecast that underlying borrowing would fall to £119.9bn in 2012/2013, marginally lower than the latest official estimate of £121.6bn for the previous year. Victoria Clarke, UK economist at Investec, said that, following Wednesday’s data, the OBR is likely to raise its estimate in the Budget by “some £10bn or so”.
Howard Archer, UK economist at IHS Global Insight, said the likely overshoot would jeopardise the UK’s top-notch credit rating. “The January public finance data will likely do little to change high and mounting expectations that at least one of the credit rating agencies will strip the UK of its AAA rating within the next few months,” he said.
Wednesday’s public finance figures for January will be closely scrutinised because they will be the last before the Budget on March 20.
January is a key month for tax receipts, with large sums from corporation tax and self-assessment income tax. As a result, the Exchequer usually raises more than it spends, which helps cut borrowing. Ignoring one-off effects, and on a comparable basis with last year, Investec expects a £10.8bn surplus — £4.4bn more than last year. The pace of government spending growth is expected to “soften modestly”, Ms Clarke said.
The figures will be flattered by one-off items such as the Treasury’s decision to take over the Royal Mail pension scheme and to seize the £37bn of cash in the Bank of England’s quantitative easing (QE) programme. It will take an £11.5bn slice of the QE cash, which will cut the headline borrowing requirement.
Including the one-off gains from the Royal Mail and QE, the OBR expects borrowing this year to be £80.5bn. Investec reckons it will raise that to about £90.5bn in the Budget.
Officials are now said to be hoping the 4G mobile spectrum auction will raise more than the £3.5bn forecast to help bring down borrowing.
Jobs figures this week are expected to show unemployment remains at 7.7pc.