BRITAIN posted a larger budget deficit than expected in February, boosted by cost of living payments and the effect of past inflation on public finances, official data showed on Thursday (Mar 21).

Public sector net borrowing, excluding state-owned banks, was £8.4 billion (S$14.4 billion) last month, down from £11.84 billion a year earlier, the Office for National Statistics (ONS) said.

The reading was higher than any economist expected in a Reuters poll that had pointed to a deficit of around £5.95 billion.

With a national election expected before the end of the year, the figures underlined how little room the next government will have to finance measures to boost Britain’s anaemic economy.

The ONS said government spending had been boosted by £2 billion of cost of living payments to households under its existing schemes.

Inflation had also lifted the value of spending on social benefits as well as tax receipts – particularly for income and corporation taxes.

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The data suggested that finance minister Jeremy Hunt, whose Conservative Party is lagging far behind the opposition Labour Party in opinion polls, is on track to meet the Office for Budget Responsibility’s (OBR) borrowing forecast for 2023/24.

With only one month to go, the cumulative budget deficit for the financial year so far stood at £106.8 billion – down 4.1 per cent compared with first 11 months of 2022/23.

Earlier this month, the OBR forecast a budget deficit for 2023/24 of £114.1 billion – meaning another £8 billion deficit in March would be enough to meet that forecast.

The outlook for 2024/25, which starts in April, looks trickier.

“Hunt’s aim to cut the deficit by a quarter to £87 billion in the coming financial year will be challenging to achieve given much-higher-than-inflation rises to the state pension, benefits and the minimum wage,” said Alison Ring, director of public sector and taxation at ICAEW, a trade body for chartered accountants.

“Pressure to find extra money for defence, local government and public services is only likely to grow as the general election approaches.” REUTERS