Three experts offer their analysis of what the latest debt and borrowing figures signify
Britain's national debt has breached £1tn for the first time, official figures showed on Tuesday. At the same time, government borrowing fell in December. Here is what City economists made of the numbers.
Allan Monks, JPMorgan Chase
Upward revisions to prior months offset a lower-than-expected borrowing requirement for December. But borrowing overall is on track to meet the OBR's latest 2011/12 projection for a deficit of 8.4% of GDP (£127bn), with risks of a better outturn
More broadly, the details of the monthly data continue to show relatively weak central government revenues (although less so recently) being offset by lower-than-expected current spending. At the autumn statement, the chancellor announced an increase in the levy on banks (to 0.088%) effective from January 2012 in order to address the shortfall in revenues arising from weak growth.
Next month's January release of the public finances – the most important of the year in terms of the collection of tax receipts – will provide a good indication of where 2011/12 borrowing will come in. If receipts deteriorate only modestly from a year earlier (around £1bn or so) an outturn close to the OBR's latest forecast of £127bn (which was revised up in the autumn statement) would look likely.
If the modest improvement in central government revenues seen in the last two releases continues, while current spending maintains its recent trend, borrowing could well come in a few billion better than the OBR currently expects in 2011/12.
Beyond then, the deficit is expected to drop only slightly to £120bn in 2012/13, but this would bring the deficit to GDP ratio down to 7.6%, based on the OBR's current forecasts.
Daniel Solomon, Centre for Economics and Business Research
The government's focus on fiscal prudence has delivered one worthwhile reward: low interest rates on its debt. A UK 10-year government bond now has a yield of 2.2%. Although, in signs that markets don't find the UK's debt reduction policies entirely credible, this figures has risen over the month. Low expected inflation in the future means that 10-year UK bonds will offer almost no real return if they only pay out 2.2%, so this rate may well continue to climb.
Despite these mitigating factors, Tuesday's data will make mixed reading for the government. They are on the right track, but are moving forward much more slowly than they had planned.
The Office for Budget Responsibility's projections for deficit reduction, despite having undergone several downward revisions, are still overly bullish. The OBR's latest economic and fiscal outlook publication predicts that annual GDP growth of 3% by 2015 and that public sector net borrowing will have fallen to 1.2% of GDP by 2016-17. The second prediction relies on the first holding true. Since the first prediction is unlikely to hold, the second probably won't either. The new data released by the ONS simply drive home the point that the government is likely to miss its deficit reduction targets.
Blerina Uruci, Barclays Capital
Despite the progress of recent months, the near-term outlook for public debt is not rosy. General government gross debt (which is more internationally comparable than the public sector net debt measure favoured by the UK government) currently stands at around 76% of GDP. Both we and the OBR expect it to rise steadily over the next three years, breaching the critical 90% level before declining only gradually.
This highlights the fact that the government still has a significant challenge ahead if it is to put a brake on the rapid increase in the debt to GDP ratio and achieve its target of starting to cut this ratio by 2015-16.
Rating agencies have cited 90% as a debt ratio a triple-A country would be expected to breach only temporarily, if at all. Although not under immediate threat, the UK's triple-A rating is far from assured.