October 16, 2019

British Recovery Plan Threatened by Weak Growth

The Office for National Statistics said government borrowing in October was £8.6 billion, or $13.7 billion, compared with £5.9 billion ($9.4 billion) in October 2011. Corporate tax receipts were down 9.5 percent while spending on social benefits increased 7.7 percent from October 2011.

Although Britain emerged from recession in the third quarter, with a 1 percent increase in economic growth, analysts have cautioned that that was distorted by special factors like the Olympic Games and that the outlook for growth remained feeble.

The figures Wednesday support that thesis, suggesting that the chancellor of the Exchequer, George Osborne, will struggle to hit his target of limiting borrowing for 2012-13 to £120 billion ($191 billion). In the longer term some analysts say they also believe that Britain’s prized AAA credit rating is at risk.

Sam Hill, fixed-income strategist for Britain at RBC Capital Markets, said in a note that borrowing for October had exceeded the consensus expectation of £6 billion ($9.5 billion).

“With data for seven months of the fiscal year now in, the government have borrowed 61 percent of the full year target of £120 billion, about four percentage points higher than trend over the last three years,” he said. “We believe this is consistent with our forecast for an upward revision to the £120 billion borrowing target of £5 billion.”

The lack of clear signs of a return to robust economic growth remains the main concern for most analysts.

“The underlying story of this year is tax receipts coming in weaker than expected,” said Robert Wood, chief economist for Britain at Berenberg Bank in London. “That’s because growth has stalled.”

Mr. Wood said it remained “touch and go” as to whether the government would meet its deficit reduction targets.

“I still think that the credit rating is more likely than not to be downgraded over the next few years,” he added.

The government argued that the figures indicated that it was keeping control of spending.

“The economy is healing, but it still faces many challenges,” said a spokesman for the Treasury, who in line with policy asked not to be identified. “These numbers illustrate that, but also show the government’s plans to bring spending under control are on track for the year.”

The spokesman said that corporate tax receipts were affected by lower-than-expected energy production from the North Sea.

In a separate development, minutes of the last meeting of the monetary policy committee of the Bank of England revealed divisions at the central bank over how to manage a return to growth, with one member calling for more economic stimulus.

David Miles argued that an asset-buying plan, intended to improve growth, could be increased by £25 billion ($40 billion) without stoking inflation. But the committee, which has already pumped £375 billion ($597 billion) into the economy via such quantitative easing, elected not to expand the program.

The panel also discussed reducing the benchmark interest rate from its record low of 0.5 percent, but unanimously voted not to change it.

Article source: http://www.nytimes.com/2012/11/22/business/global/figures-show-fragility-of-british-recovery.html?partner=rss&emc=rss

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