Dismal UK public finances in November

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The public sector needed more cash last month since comparable records began 20 years ago, casting further doubt that Gordon Brown will be able to reduce borrowing this year in order to meet his golden rule.

Official figures showed on Monday that the government?s current budget deficit came in once again below last year?s despite plans to half the gap in the current financial year.

Last month, the government had to borrow ?9.4bn, pushing total borrowing for the year to ?32.7bn and total government debt above ?400bn.

Jonathan Loynes at Capital Economics said: ?November?s UK public finances figures are really poor. Extrapolating forward, this points to a full-year total of borrowing to around ?40bn pounds compared with Mr Brown?s pre-Budget report forecast of ?34bn.?

?The Treasury has suggested that the public finances will improve in the last few months of the year thanks to an oil-related boost to tax receipts. But this looks very unlikely to make up all of the shortfall and, in any case, spending is overshooting too.?

John Butler at HSBC added: ?Going forward a combination of structural and cyclical disappointment suggests the probability of a marked improvement in 2005 and 2006 is slim.?

He said: ?We expect the golden rule, as currently defined, to be broken next year.? According to Mr Brown?s golden rule, the government can only borrow to invest during the economic cycle, which prohibits it from taking up debt to fund current spending such as nurses? salaries.

However, the Treasury insisted after the data was released that it stood by its forecasts. ?We are meeting our fiscal rules and will continue to do so,? an official said.

Elsewhere, figures from the Council of Mortgage Lenders showed further evidence of a slowdown in the housing market. Due to lower lending for house purchases, gross lending fell 4 per cent in November to ?22.3bn, compared with ?23.2bn in October and ?25.5bn in November 2003.

Loans for house purchase accounted for 42 per cent of overall mortgage lending, the lowest proportion since May 2003. The number of loans for house purchase stood at 85,000 in November, compared to 91,000 in October.

This represents a year-on-year fall of 25 per cent from November 2003 (113,000) and is the lowest monthly total of loans for house purchase since February 2003.

Loans to first-time buyers comprised 30 per cent of loans for house purchase, compared to 32 per cent last month, a little above the average over the last two years.

But remortgaging remained strong, growing to ?10.6bn in November, compared to ?10.2bn in October and ?10.8bn in November 2003.

Michael Coogan, CML director general, said: ?The buoyancy of the housing market in the first half of the year means that the number of transactions in 2004 is likely to reach a 15-year high.

But he added: ?It is inevitable that there will be a decline in activity going forward. January and February are traditionally weaker months for lending, and so we expect the figures to reflect a market slowdown until the spring. What is is apparent is a picture of a slowing market, but one that should remain stable as we return to more normal volumes of lending over 2005 as a whole.?

The Council?s findings were supported by the British Bankers? Association and the Building Societies Association, which also reported weaker mortgage lending for November on Monday.

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