UK borrowing to reach £175bn in 2 years

With Alistair Darling’s April budget soon to be announced, the first thing that should be noted from next week’s budget is the announcement that public borrowing is set to reach £175 billion by 2011.

Many analysts have indicated that this deficit will be the worst since the Second World War.

The hole in public finances has been exacerbated by the government department’s huge budgets which are fixed until April 2011.

Public spending is heading for a 27-year high and is likely to reach 48 per cent of national income.

This will become even more problematic, given the latest forecast that the economy is likely to contract by as much as 3 percent for 2009.

It seems as though the government has again miscalculated since the Chancellor’s prediction of a public sector deficit of £118 billion for 2009-2010 is far short of the independent forecaster’s average predicted deficit of £160 billion.

The Institute for Fiscal Studies (IFS) has warned that the biggest problem that could be faced in dealing with this deficit is the length and severity of the recession and it could postpone economic improvement with IFS forecasts pointing out that by 2016, public sector debt could reach 80 percent of GDP.

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