Britain's public sector borrowing totaled 15.7 billion pounds ($25.4 billion) in December, the government reported Thursday, a record for the month but still not as bad as market forecasts.
The nation's net debt rose to 870 billion pounds, equivalent to 62 percent of gross domestic product.
December's borrowing raised the total for the calendar year to 142.6 billion pounds, the highest recorded by the Office for National Statistics since it began tracking data in 1946.
"Market worries about the U.K.'s finances and credit rating are unlikely to ease until more decisive corrective action is unveiled. A painful fiscal squeeze lies ahead," said economist Jonathan Loynes at Capital Economics.
For the first nine months of the government's fiscal year, total borrowing stands at 119.9 billion pounds.
The statistics agency said tax revenue was down marginally in December at 37 billion pounds, a drop of 100 million pounds from December 2008.
The governing Labour Party and the opposition Conservative Party both say cuts in public spending are required but the Conservatives, the favorites to win a national election this year, say they would move faster to cut public spending.
The December borrowing figures followed other recent signs that Britain's worst recession since 1921 has been less painful than many people expected.
The Confederation of British Industry said Thursday that it believed the recession was over. Its survey of 461 manufacturers found that 31 percent said output rose in the fourth quarter while 20 percent reported a fall.
It was the strongest set of figures from the survey since January 2007, the CBI said.
"However, the manufacturing sector is not out of the woods," said Howard McCafferty, the CBI's chief economic adviser.
"With domestic demand still weak, and credit remaining constrained for some companies, firms expect growth to be more modest in the next quarter. This underlines our view that the U.K.'s economic recovery will be slow and protracted."
The Council of Mortgage Lenders said separately Thursday that gross mortgage lending rose to 13.7 billion pounds in December, up 3 percent from a year earlier and 14 percent better than in November. The council said the increase may have been caused by buyers hurrying to complete purchases before taxes rose in 2010.
The ONS said Wednesday that unemployment in the September-November period dropped to 7.8 percent from the 7.9 percent rates in August-October quarter — although full-time employment continued to decrease.
"While the public finances data still make horrible reading, it does at least appear that the rate of deterioration is now slowing," said Howard Archer, economist at IMS Global Insight.
The ONS will announce its preliminary calculation of fourth-quarter GDP on Tuesday, which is widely expected to show that the U.K. returned to growth for the first time since it fell into recession in the second quarter of 2008.
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