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UK borrows in January, bad sign for deficit

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[March 19, 2010]  LONDON (AP) -- Britain's national and local government had to borrow money in January for the first time in 1993, officials statistics showed in another sign of how recession is hurting government finances.

HardwareBritain just barely crawled out of recession in the fourth quarter, with a preliminary estimate that GDP rose by 0.1 percent. Fears persist that the economy, propped up by massive government intervention, could fall back into recession later in the year.

"January's U.K. public finances figures suggested that this year's budget deficit could exceed that of Greece," said Jonathan Loynes, analyst at Capital Economics.

As a proportion of GDP, Loynes said the U.K. deficit for the full year could hit 12.8 percent of GDP, compared to the forcast of 12.7 percent for Greece.

The January borrowing, the first since records began in 1993, surprised analysts who had expected a small surplus due to corporation tax receipts.

For the first 10 months of the current financial year, borrowing has reached 122.4 billion pounds, the statistics agency said. Net debt amounted to 848.5 billion pounds at the end of January, equivalent to 60 percent of GDP.

The Treasury said it was on track to match the forecast of a public sector deficit of 175 billion pounds for the full year. Others were skeptical.

"If this overshoot is replicated in February and March, then the ... full-year forecast will certainly be under threat," said Andrew Goodwin, economic adviser to the Ernst & Young ITEM Club. He described the January figures as "pretty ghastly."

"The current Treasury forecasts are far too optimistic, both in terms of the speed of recovery and the extent to which tax revenues will recover, and it is clear that major additional tightening will be required," Goodwin said.

U.K. mortgage lending gave another negative sign as it slumped in January following an unusual surge in December as buyers sought to beat a new-year tax increase, the Council of Mortgage Lenders said Thursday.

Gross lending was 9.1 billion pounds ($14.2 billion), the lowest monthly total since February 2000. The figure was a third lower than in December and 21 percent less than the amount advanced in January 2009.

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The housing market was hit hard by recession, though a lower-than-normal level of houses for sale has led to a recent succession of monthly price increases. The market has also benefited from low interest rates, with the Bank of England keeping its benchmark rate at an all-time low of 0.5 percent.

Positive news came from U.K. auto production, which rose 65 percent in January compared to weak year-ago figures, with production for the home market soaring by 178 percent, the Society of Motor Manufacturers and Traders said Thursday.

U.K. factories turned out 101,190 autos in January as the industry logged its biggest year-on-year gain since 1976.


Car sales in Britain have been supported by a government-backed program which offers discounts of 2,000 pounds ($3,200) to buyers who trade in a car more than 10 years old. The program is expected to end in March.

Despite that, the society's chief executive, Paul Everitt, forecast "a modest recovery in 2010 output as economic growth, a competitive exchange rate and the introduction of innovative new models to U.K. plants help to lift manufacturing levels above those seen in 2009."

[Associated Press; By ROBERT BARR]

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.



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