UPDATE 2-UK public borrowing hits record high in Nov

* UK Nov PSNB unexpectedly jumps to record 22.8 bln stg

* Pound falls as markets question government budget plan

* Treasury says borrowing plans still on track

* High health, defence and EU spending drives rise

* Revenue growth weakest since December 2009

By Fiona Shaikh and David Milliken

LONDON, Dec 21 (BestGrowthStock) – British public borrowing
unexpectedly surged in November to its highest on record,
casting doubt over the government’s ability to meet its deficit
reduction target for the current financial year.

Economists were unsure if the poor reading was a one-off or
the start of a new downturn for public finances in Britain,
where the budget deficit totalled 10.4 percent of gross domestic
product (GDP) last year, one of the highest among major
economies.

But either way Tuesday’s official data give the government a
poor starting point from which to begin the toughest spending
cuts in a generation next year, as it seeks to almost eliminate
the deficit by 2015.

The Office for National Statistics said public sector net
borrowing rose to a record 22.8 billion pounds from 16.7 billion
pounds last November, pushed up by a big rise in spending on
defence, health and the European Union, and slow revenue growth.

Economists had forecast a deficit of just 17 billion pounds,
and November’s overshoot wipes out almost all the savings made
since the fiscal year started in April — causing sterling to
fall to a three-month low against the dollar.

The government forecasts that PSNB excluding financial
sector interventions will fall to 148.5 billion pounds in the
2010/11 fiscal year from 156.3 billion pounds last year, and
said Tuesday’s data did not change this.

However, economists pointed out that total PSNB-ex between
April and November of 104.4 billion pounds was now just a
billion pounds lower than in the 2009/10 tax year, compared with
a cumulative saving of around 6 billion pounds last month.

“This is dire news for Chancellor George Osborne to digest
over Christmas,” said IHS Global Insight economist Howard
Archer. “There is now a very serious risk that the government
will miss its fiscal targets for 2010/11. Much will depend on
how well growth holds up over the rest of the fiscal year.”

Investec economist Philip Shaw said that extrapolating the
current trend, PSNB-ex would total 155 billion pounds this year,
rather than the 148.5 billion pounds or 10.0 percent of GDP
forecast by the government’s Office of Budget Responsibility.

“The figures are extremely disappointing and a bit of a bolt
out of the blue,” Shaw said. “It is very difficult to judge
whether this is just a rogue figure or whether it represents
something more fundamental.”

LOCAL BORROWING

The ONS said the deterioration was due to a 10.8 percent
rise in central government spending compared with a year ago
combined with an annual rise of just 3.1 percent in tax revenues
— the smallest since last December.

Local government borrowing last month was more than treble
that of a year ago at 2.9 billion pounds, although the ONS said
this was a volatile measure and could possibly be revised lower
in subsequent months.

The ONS said public sector net debt including financial
sector interventions rose to 65.2 percent of GDP, its highest
since records began in March 1993. Excluding financial sector
interventions, public sector net debt was 58.0 percent of GDP.

“These outturns are in line with the OBR’s latest forecast
for borrowing to fall by almost 10 billion pounds this year
compared to last,” said a Treasury spokesman.

However, the government may face an uphill struggle to meet
its spending targets over the rest of the year. Unemployment
unexpectedly rose for the first time in six months in the three
months to October, and unusually cold and snowy weather in
December may depress fourth-quarter output and tax revenue.

Public concerns about the scale of austerity measures needed
to reduce government borrowing — including a rise in VAT from
next year — are already weighing on confidence. A survey by GfK
NOP showed consumer morale at its lowest level since July in
December. [ID:nL2635039]

“While the higher VAT rate from January should help to boost
revenues, a sharp slowdown in consumer spending will dampen its
near-term effect,” said Hetal Mehta, economist at Daiwa Capital
Markets.
(Editing by Patrick Graham/Ruth Pitchford)

UPDATE 2-UK public borrowing hits record high in Nov