According to the latest statistics, government hit a record high for August borrowing due to an increase in spending. Public finances are now under even greater pressure and BoE is at the ready to begin printing money for another round of quantitative easing. This could come as soon as October if given the go ahead.
Net borrowing in the public sector reached £15.9 billion in August which made it the highest amount borrowed on record for that month. Last year the figure was £14 billion as reported by the ONS and this year’s amount was significantly higher than the £13.2 billion which was forecast for August 2011.
Since government borrowed less than predicted in the months leading up to August, the Treasury maintains that government is still on target for the year’s total. However, analysts warn that the borrowing target will likely be missed for 2011. A spokesperson for the Treasury stated that although the times are financially challenging, tax receipts are up and continue to grow.
Although there is a very good chance that government target on finance will be met, the IHS Global Insight warns that this may not be the case due to the deterioration of the economy. If it remains on its current track, IHS believes public borrowing will hit £5 billion above its target of £122 billion.
In addition, a sluggish economy is forecast to chip away at any increased revenues realised by taxes and unemployment benefits will increase as well. This is according to an IHS spokesperson, Howard Archer. Adding fuel to the fire was when a £12 billion hole was found in the Office for Budget Responsibility’s calculations.
This puts the deficit as high as 25% over what was projected, further increasing fears for a double dip recession. At this point another round of QE may or may not be a remedy.
