OECD urges action as Britain`s debt mounts
The OECD urged action on Thursday as new data showed Britain plunging ever deeper into debt, one day after Prime Minister Gordon Brown pledged a new law to fix public finances.
London: The OECD urged action on Thursday as new data showed Britain plunging ever deeper into debt, one day after Prime Minister Gordon Brown pledged a new law to fix public finances.
Britain`s public sector net borrowing requirement -- the Labour government`s preferred measure of public finances -- hit 11.4 billion pounds (12.8 billion euros, 19.0 billion dollars) in October, a record high for the month.
That compared with a deficit of only 100 million pounds one year earlier in October 2008, the Office for National Statistics (ONS) revealed.
The news emerged on the same day that the Organisation for Economic Cooperation and Development (OECD) called for the British government to outline plans to nurse the finances back to health and aid economic recovery.
With an election due by June, the dire state of public finances has become a key battleground, with Labour and opposition Conservatives at loggerheads over the public spending cuts and taxation hikes needed to balance the books.
"By developing and announcing more ambitious fiscal consolidation plans early and supporting them with a strong and credible medium-term fiscal framework, the government would strengthen the recovery," the OECD said.
"Such efforts would dampen uncertainty related to the fiscal position and concerns about sustainability," the Paris-based body added in its latest global economic outlook report.
The OECD also forecast that the British economy would shrink by 4.7 percent this year -- which was worse than the prior estimate of a 4.3-percent contraction -- followed by modest growth of 1.2 percent in 2010.
Brown said on Wednesday that he will seek new legislation to compel the government to halve the public deficit within four years.
October is traditionally a good month for public finances owing to the collection of business taxation revenues.
However, the country`s longest recession on record has sapped taxation revenues and ramped up government spending on unemployment benefits and economic stimulus measures.
Britain has borrowed 86.9 billion pounds in the financial year that began in April, according to the ONS.
Analysts on Thursday warned that borrowing was highly likely to breach the government`s 2009/2010 target of 175 billion pounds, forcing Britain`s finance minister, Chancellor of the Exchequer Alistair Darling to lift his forecast.
"The October public finance figures are dismal, making very depressing reading for the chancellor," said IHS Global Insight economist Howard Archer.
He said they also underlined "the need for the government to spell out in more detail how it aims to rein in the public finances over the next few years."
Darling may reveal such details when delivering a preliminary annual budget report on December 9.
Economist Douglas McWilliams at the Centre for Economics and Business Research consultancy said public borrowing for the year was "likely to exceed the chancellor`s forecast of 175 billion pounds by over 20 billion pounds.
"Our current best estimate for the deficit for 2009/2010 is 193 billion pounds. This month the rise in the deficit has been caused both by revenue shortfalls and by rising spending," he added.
Elsewhere on Thursday, official data showed retail sales jumped by 3.4 percent in October from the same month in 2008 -- the sharpest year-on-year rise for 17 months -- as shoppers appeared to shrug off the recession.
On a monthly basis they rose by 0.4 percent in October compared with September, the ONS announced.
Sales were driven by rising demand for clothing and footwear amid brighter weather, the school half-term holidays and Halloween. But analysts warned that the outlook for consumers remained uncertain.
Britain has yet to follow the eurozone, France, Germany, Japan and the United States out of recession.