British Debt Hits £1 Trillion Mark In December
British debt in December reached the highest level since records began in 1993, according to figures released Tuesday.
Britain’s Office for National Statistics said net public debt excluding the effects of any financial interventions now stands at 1 trillion pounds ($1.6 trillion), or about 64.2% of gross domestic product.
The figure represents a 13.7% increase on December 2010, when net debt was £883 billion, and comes ahead of British fourth-quarter GDP due to be released Wednesday.
The growth data are expected to show a 0.9% year-on-year increase in GDP, according to economists polled by FactSet Research.
The debt data were in line with government expectations given by Treasury Chief George Osborne in November during a budget statement to Parliament.
Then, Osborne said the debt to GDP ratio would likely stand at 67% in 2011 and added that debt reduction was “not happening as quickly as we had wished because of the damage done to our economy by the ongoing financial crisis.”
Still, ONS data showed that British public-sector borrowing was falling.
Stronger tax receipts pushed public borrowing down to £13.7 billion in December, compared with the year-earlier figure of £15.9 billion.
The ONS said a new bank tax imposed on financial institutions had boosted tax receipts by £2.4 billion in the 2011-2012 financial year.
A Treasury representative told MarketWatch that December’s figures illustrated the “scale of the fiscal challenge“ facing the U.K., but showed that it was “making good progress” in dealing decisively with the deficit.
Economist Daniel Soloman from London’s Centre for Economics and Business Research said in a note that the borrowing figures showed “a consistent sign of improvement in the public finances” but that the government was “moving forward much more slowly than they had planned.”
Howard Archer, chief European and U.K. economist at IHS Global Insight, said the going was likely to get tougher in the coming months.
“It seems inevitable that the public finances will be increasingly pressurized over the coming months by muted economic activity eating into tax revenues and pushing up unemployment benefit claims,” Archer said in emailed comments.
“There remains a very real danger that the Chancellor will before long face the difficult decision of accepting further slippage in his fiscal targets or imposing more fiscal tightening on a struggling economy,” he added.
Wednesday’s GDP figures will reveal how much the weakening economic environment has impacted growth. But Cebr’s Soloman said that with the deficit falling slower than anticipated, the effect on GDP may not be as pronounced.
“The government debt reduction being slower than planned will be good for GDP in the short run because there is higher government expenditure net of tax takings, so slower deficit reduction in the short run leads to higher short-run GDP,” Soloman said.
Analysts Wednesday will also be examining the minutes from the January meeting of the Bank of England’s Monetary Policy Committee, which are scheduled for release. They will be looking for any firm signs that a fiscal stimulus is on its way.