Britain could be heading for a bigger budget deficit next year than crisis-hit Greece and Spain, according to research by Morgan Stanley.
Economists at the investment bank calculated that Britain’s budget deficit could total £126bn, or 7.8pc, of gross domestic product in 2013-14.
That would make Britain’s the highest projected European deficit, with Morgan Stanley predicting that Greece’s would stand at 6.3pc and Spain’s at just under 6pc. The Office for Budget Responsibility currently predicts that Britain’s budget deficit could be £98bn next year, or 5.9pc of GDP.
Morgan Stanley’s forecasts underline the pressure on ChancellorGeorge Osborne efforts to cut the deficit, as official figures last week showed that government borrowing for the first five months of the financial year was running at more than 25pc over target.
In the five months to August, and excluding the one-off savings created by the Royal Mail pension fund and the Bank of England’s Special Liquidity Scheme, the Government borrowed £61.3bn – 26.7pc more than in the same period last year. The official borrowing target for the year is a rise of just 0.5pc.
Economists predicted that the bleak picture on borrowing threatened to undermine the Chancellor’s cast-iron fiscal rules. Howard Archer of IHS Global Insight said: “It is likely in his autumn statement that he will either have to acknowledge that he will be unable to start bringing down debt as a percentage of GDP by 2015/16.”
Morgan Stanley, which published its analysis before the most recent public sector borrowing figures, also predicted that at least one of Mr Osborne’s fiscal rules could be broken.
“It may be time for a ‘Plan C’ of sorts,” said economists. “The ‘least worst’ option, we think, would be to stick to the existing austerity plans but make no attempt to repair the projected fiscal slippage and risk breaking at least one of the fiscal rules,” they added.
A spokesperson for the Treasury said the Government was committed to its fiscal plan. “Though the economic climate is challenging, in August we borrowed less than the markets expected, and spending is on track for the year,” they added. “The Office for National Statistics also revealed the deficit in 2011-12 was almost £7bn lower than previously estimated, and down nearly £40bn from two years ago.”
Rachel Cooper/ The Telegraph