Government borrowing drops

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The UK government borrowed £120.6bn in the financial year to April 2013, slightly lower than the amount it borrowed the previous year, reports accountants Northampton Harris & Co.

The amount was £0.3bn lower than the previous year"s total of £120.9bn.

Borrowing in March fell to £15.1bn from £16.7bn a year earlier, excluding interventions such as bank bailouts, said the Office for National Statistics (ONS).

The government wants to eliminate the budget deficit by 2017-2018.

Meanwhile, public sector net debt - the amount that the government has borrowed over successive deficits - is now £1.2 trillion, or about 75.4% of GDP, said the ONS in its latest report.

The figures exclude the effects of both the transfer of the Royal Mail pension scheme to the government and gains from the Bank of England"s asset purchases for quantitative easing (QE).

Proceeds from the 4G mobile licences auction and another payment from the central bank in February boosted government coffers, said the ONS.

Interest that the Bank of England earns on holding government debt as a result of its so-called quantitative easing programme is transferred back to the Treasury.

Forecasts "vulnerable"

The Office for Budget Responsibility (OBR) had forecast that the deficit for the 2012-13 financial year would be £120.9bn, unchanged from the previous year.

Start Quote

The chancellor"s fans will say: "I told you so." And most economists will say: "So what?" ”

End Quote Stephanie Flanders BBC Economics Editor

"The chancellor just made it in under the OBR"s forecast, albeit by the skin of his teeth," said Victoria Clarke, an economist at Investec.

"The bigger test will be if he can continue to meet the forecasts for the years ahead, and we think it"s looking vulnerable because of the weakness of euro area, which could decrease tax revenues and mean higher spending pressures."

Mr Osborne has pushed for spending cuts as part of a wider plan to slash the deficit in order to protect the government"s creditworthiness on international markets.

In spite of his efforts, last week Fitch became the second ratings agency to downgrade the UK"s rating from the top notch level of AAA. Moody"s had downgraded the UK"s rating in February.

Last week, the IMF cut its growth forecast for the UK, and its chief economist, Olivier Blanchard, urged the UK to rethink its austerity policy in the face of continuing weakness in the economy.

David Tinsley, chief UK economist at BNP Paribas, said: "There"s a small crumb to be had from the fact that borrowing is less than last year, but really that"s a political point not an economic one.

"The substantive point is that tax revenues are very weak because the economy - nominal GDP growth - has been very weak.

"The spending side looks better, the government seems to be delivering on spending reductions but failing on getting growth and therefore revenues, and that"s why the fiscal position isn"t improving. It"s flatlining," he added.

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