Britain's still deep in the red

published 24 July 2014

The government's plan to cut the deficit (the annual government overspend) has hit a setback. The government borrowed £11.4bn in June, only marginally less than in June 2013.

April and May also saw big deficits, leaving borrowing in the first three months of the 2014-2015 tax year 7% higher than in the same period last year.

Yet, the Office for Budget Responsibility expects borrowing to be 10% lower in 2014-2015 as a whole, so this is hardly a promising start. The overall debt pile has risen to a new record above £1.3trn, 77.3% of GDP.

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What the commentators said

Don't rule out another fiscal crisis, said Allister Heath in The Daily Telegraph. The deficit is still "extraordinarily high by historic standards": it reached 6.6% in 2013-2014, down from 11.3% at the height of the recession.

The current "snail-like" pace of consolidation implies the budget won't balance until 2019. So "if anything at all goes wrong" over the next few years Russia or China triggering a global slowdown, say, or a new government turning the spending taps on again Britain's creditors could start to worry about borrowing hurtling out of control.

The immediate problem is that spending is being cut too slowly, while tax receipts are "remarkably subdued" for such a supposedly strong recovery. While there are more people in work than ever, falling productivityis keeping wages, and hence incometax, subdued.

There are grounds for optimism on this front, however, said Capital Economics. A key problem for productivity has been a lack of business investment, but this is now rising it is up by 10% year-on-year and the latest data suggest it will be "stellar in the near term". Surveys covering salaries are pointing to above-inflation pay rises later this year. It's too soon to panic about the public finances.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.