Tags: EU | Britain | Economy

U.K. Budget Deficit Soars to World War II Levels

Thursday, 22 Apr 2010 08:08 AM

 

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Britain posted its largest annual budget deficit since World War II on Thursday as campaigning for a tight national election intensified.

The 2009/10 borrowing figures were slightly better than forecast by the government, but still revealed the extent of Britain's economic troubles as party leaders attempt to convince recession-weary voters they are the best option for future growth.

The Office for National Statistics reported that public sector net borrowing rose to a record 152.84 billion pounds ($235.9 billion), or 10.9 percent of gross domestic product.

That significantly undershot the 167 billion pounds forecast by the ruling Labour Party, but was well up from the 86.91 billion pound deficit recorded in 2008/09.

"The fact that the public finances were modestly less awful than feared ... does not materially alter the fact that they are in an almighty mess," said IHS Global Insight economist Howard Archer. "Whoever is in power after the May 6 general election will have to announce further major spending cuts and tax hikes to return the public finances to a sustainable state over the medium term."

The blowout in Britain's deficit is a key point of contention in campaigning for the national poll.

Conservative leader David Cameron, who has pledged to announce a new budget within weeks if his party is elected, has said Britain needs a credible plan to deal with its debt starting immediately "to show the world we are back open for business."

Treasury chief Alistair Darling, meanwhile, has stuck by Labour's contention that cutting spending too quickly would risk a recovery that "is still in its infancy."

Jonathan Loynes, chief European economist at Capital Economics, said the figures could give the government a "modest pre-election boost," but he added that all the parties' fiscal plans are based on extremely optimistic assumptions.

Britain was the last major economy to return to growth after the global credit squeeze, enduring a bleak 18-month downturn during which around 1.3 million people were laid off and 50,000 families had their homes repossessed.

More detail on the country's progress out of recession will come on Friday when the National Office for Statistics releases first quarter GDP figures.

Economists expect a small rise of around 0.4 percent in the first three months of the year, the same pace at Britain left recession in the final quarter of 2009.

In one positive sign Thursday, the Society of Motor Manufacturers and Traders reported that car production soared 90.2 percent in March, compared with the same month a year ago. The rise was a record for any month, revealing just how deep the industry sank during the financial crisis.

A separate survey on retail sales disappointed expectations. The Office for National Statistics said that volumes rose 0.4 percent last month, below the 0.8 percent expected by economists well down from the 2.5 percent rise in February.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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