UK budget deficit widens to record on investment

Britain had a ($20.4 billion) budget deficit in March, a third more than economists forecast, as capital investment increased

Gulf News

London: Britain had a £10.2 billion ($20.4 billion) budget deficit in March, a third more than economists forecast, as capital investment increased.

The shortfall was the largest for the month since records began in 1993 and widened from £7.1 billion a year earlier, the Office for National Statistics in London said on Friday.The median forecast in a recent survey of 17 economists was £7.8 billion.

UK gilts extended losses on concern Britain may sink deeper into deficit as a worsening economic slowdown erodes taxes on everything from home purchases to bankers' bonuses. Economists and opposition parties say Chancellor of the Exchequer Alistair Darling has little scope to help the economy by cutting taxes after his Labour government let spending soar.

"The public finances are in no way ideally positioned for the slowdown," said David Page, an econ-omist at Investec Securities in London. "They've got almost no room to step up borrowing."

The yield on the two-year government bond, among the securities most sensitive to the interest-rate outlook, climbed 12 basis points to 4.26 per cent. The price of the 4.75 per cent security due June 2010 dropped 0.24, or £2.4 per £1,000 face amount, to 100.98.

The budget deficit for the fiscal year through March was £35.6 billion, less than the £36.4 billion Darling forecasts in his budget. Borrowing in February was £247 million, £2.4 billion less than first estimated.

Revenue in the last financial year rose 5.7 per cent and spending increased 6.1 per cent. In March, revenue rose 7.6 per cent, helped by a near doubling of corporation tax receipts. Income tax rose 4.4 per cent and value-added tax, a levy on sales, rose just 1.7 per cent. Spending gained 7.6 per cent.

Central government net investment rose 47 per cent from a year earlier to £7.5 billion. Borrowing by public corporations outweighed an improvement in the fiscal position of local authorities.

In his March budget, Darling added £20 billion to his deficit forecasts for the four years that began this month as the credit famine roiling financial markets deepens a housing market slump and curbs consumer spending.