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UPDATE: UK Public Borrowing Hits Record For August

— U.K. August public borrowing highest since records began in 1993

— Receipts under-perform OBR forecasts

— ONS revises down borrowing figures for previous months

— U.K. treasury says deficit-cutting program on track

(Rewrites introduction, adds detail and Treasury comment from paragraph four.)

By Alex Brittain and Ilona Billington

Of DOW JONES NEWSWIRES

LONDON -(Dow Jones)- Falling tax receipts and higher spending pushed U.K.public borrowing to its highest August figure on record, but the U.K. governmentsaid it could press ahead with efforts to cut the public deficit.

The Office for National Statistics Wednesday said that public-sector netborrowing, excluding financial-sector interventions, rose to GBP15.9 billionfrom GBP14.0 billion in August of last year.

That figure is the highest for this month since records began in 1993 and badnews for Chancellor of the Exchequer George Osborne, who is looking for to pare backthe U.K.’s annual deficit with an GBP111 billion program of spending cuts andtax rises.

But in better news for Osborne, the ONS revised down the net borrowing figurefor the 2010/11 fiscal year, by GBP5.9 billion to GBP136.7 billion. It alsoimproved July’s net borrowing figure to show a surplus of GBP2.4 billion,compared with a deficit of GBP200 million previously estimated.

That makes the chancellor’s deficit-cutting targets somewhat easier to reach.But if the economy continues to slow his plans could run into trouble, as taxreceipts fall and the govt is forced to spend more on jobless benefits.

The International Monetary Fund Tuesday cut its forecast for U.K. growth to1.1% this year–way below the OBR’s assumption of 1.7%–and stated the governmenthas room to ease its austerity program if a weak economy makes it necessary.

But Osborne has repeatedly dismissed calls for him to switch to a more modest”plan B” of austerity measures, arguing that investors will push up the U.K.’scost of borrowing on monetary markets if he is seen to be soft within the deficit.

Reacting to the ONS figures, a treasury spokesman said the deficit-cuttingplan is on course.

“Tax receipts have continued to grow and spending so far this yr has grownat the rate the OBR forecast in the budget,” he stated, referring to the Officefor Budget Responsibility, the independent fiscal monitor.

But while a 3.7% rise in government spending so far this fiscal 12 months is inline with the OBR’s predictions, income has under-performed. Total receipts–chiefly taxes–rose 4.6% in between April and August, missing the OBR’s forecast of7.2%.

-By Alex Brittain and Ilona Billington, Dow Jones Newswires; +44 20 7842 9203;alex.brittain@dowjones.com

 (End) Dow Jones Newswires 09-21-110736ET Copyright (c) 2011 Dow Jones & Company, Inc.

Posted: October 21st, 2011 under Market News.
Comments: none

BOE Dale: Further Asset Purchases Could Be Needed

SOUTH SHIELDS, England -(Dow Jones)- A further round of asset purchases mightbe needed if the financial outlook for the U.K. continues to weaken, Bank ofEngland policy maker Spencer Dale said Wednesday.

Dale, the U.K. central bank’s chief economist, told an audience ofmanufacturers in South Shields, north-east England, that the outlook for demandin the U.K. has weakened “materially” as a consequence of slowing growth in theU.S. and Europe.

He added concerns about the fiscal position of some euro-zone members–andweakening confidence in policy makers’ ability to solve the currency union’ssovereign debt crisis–are also weighing within the U.K.’s prospects.

“If the financial situation continues to deteriorate, some additional looseningin financial policy might be needed,” Dale said, according to a copy of hisspeech.

Minutes from the BOE’s September policy meeting, published earlier Wednesday,showed policy makers increasingly believe a further bout of asset purchases–apolicy known as quantitative easing–may well prove necessary, although only oneof the bank’s nine rate-setters actually voted to revive the program.

Earlier this year, Dale was one of two BOE policy makers advocating a rise inthe bank’s benchmark interest rate to see off inflation risks. But he abandonedhis call for a quarter-point rate rise in August.

Dale said Wednesday he dropped his call for higher borrowing costs because theoutlook for demand has worsened.

But he added any choice to revive quantitative easing must be weighedagainst a backdrop of high inflation. Inflation rose to 4.5% within the 12 months toAugust from 4.4% in July, and the BOE has warned that increases in householdutility bills are likely to push it past 5% later this 12 months.

The bulk of Dale’s speech Wednesday focused on U.K. productivity, whichofficial data published Tuesday showed was among the weakest of all members ofthe Group of Seven leading nations. Slowing output inside the U.K. may reflectsupply weaknesses and not just weak demand, which policy makers will also haveto consider when setting monetary policy, Dale said.

-By Jason Douglas, Dow Jones Newswires; 44-20-7842-9272; jason.douglas@dowjones.com

 (Finish) Dow Jones Newswires 09-21-110749ET Copyright (do) 2011 Dow Jones & Company, Inc.

Posted: October 21st, 2011 under Market News.
Comments: none