Monday April 20, 02:59 PM
PREVIEW-Britain to post record full-year budget deficit
By Christina Fincher
LONDON, April 20 (Reuters) - The deterioration of Britain's finances will come under the spotlight on Wednesday just hours before finance minister Alistair Darling delivers his second annual budget.
Government borrowing for the 2008/09 tax year is forecast to come in at 91 billion pounds, well above the 78 billion pounds Darling forecast in his pre-budget report in November and more than double the level he predicted a year ago.
The full impact of the recession has yet to be felt. With social security spending rising and tax revenues from traditional cash-cows such as banking and property crumbling, government borrowing for the year just begun could almost twice as high.
'Figures for the last tax year will be bad enough but they will get even worse,' said George Buckley, chief UK economist at Deutsche Bank.
'The collapse in GDP will squeeze the public finances significantly over the coming two years, so much so that a deficit of 12 percent of GDP is likely.'
Figures for February showed year-to-date borrowing had already topped 75 billion pounds, its highest level since comparable records began in 1993. Since March is normally a high spending month, the prospect of a last-minute reprieve is slim.
The consensus of economists polled by Reuters is for public sector net borrowing to hit 16.15 billion pounds in March , almost 5 billion pounds higher than in the same month a year ago.
The cash measure of borrowing, the public sector net cash requirement, is forecast to come in at 16.5 billion pounds.
'Revenues have been down an annual 10 percent in the last three months and we expect another sharp decline this month,' said Michael Saunders, chief UK economist at Citi.
Analysts polled by Reuters expect government borrowing in the tax year just begun to total a record 160 billion pounds.
The government will finance its deficit by issuing a record amount of gilts. When interest rates are at a record low and demand for gilts high, financing costs are not a problem. The bigger challenge will come when the recession has ended and interest rates are rising.
(Reporting by Christina Fincher)
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