May’s public finance figures were a disappointment. Borrowing reached £17.9bn, £3bn more than expected and up from £15.2bn in May 2011. The increase was driven by a 7.3% year-on-year fall in income tax receipts. At the same time, far from being cut, government spending rose by 7.9% year-on-year.
Bank of England Governor Sir Mervyn King, noting the deteriorating global outlook, said he didn’t think Britain was even half way through its post-credit-bubble slump.
What the commentators said
We’re only two months into the fiscal year, but it is already “evident that George Osborne is facing a major battle to meet his fiscal target for 2012-2013 and is in grave danger of losing it”, said Howard Archer of IHS Global Insight. At this rate, said Capital Economics, 2012-2013 borrowing will reach £150bn, compared to the Office for Budget Responsibility’s March forecast of £120bn.
The fiscal squeeze is “sliding off track” as the lacklustre and now shrinking economy has not only dragged down tax receipts, but also pushed up benefit payments to temper the impact on the unemployed, said Citywire.co.uk.
So the government is having trouble imposing its spending cuts. It does nothing for the government’s dwindling credibility on the deficit, however, for George Osborne to postpone August’s planned fuel duty increase, said The Times. Rather than “get things back on course”, it seems he chose to “veer further towards the rocks”.
With the euro crisis showing no sign of improvement and the rest of the world slowing, “things are not about to get easier for our beleaguered Chancellor”, as Jeremy Warner put it on Telegraph.co.uk.
We certainly can’t expect miracles from yet another bout of quantitative easing, or money printing, as this has had little impact so far. To date, at least, global investors haven’t panicked that Britain’s fiscal tightening hasn’t gone as planned, noted Buttonwood on Economist.com. But “what happens when the market wakes up to the government’s struggles?”