The warnings came as weaker tax receipts from the sluggish economy and higher spending led to the worst borrowing figures for the month of April on record.
Public sector borrowing was £7.7 billion – £2.5 billion higher than a year ago – and the worst figure for the start of a fiscal year, said the Office of National Statistics. But last year’s borrowings were £2 billion lower than originally expected and the one-off bank payroll tax raised £3.5 billion for the Exchequer.
Shadow Chancellor Ed Balls said the confirmation by the ONS of the last two quarter’s figures meant the economy had “flatlined even before the bulk of spending cuts and tax rises have kicked in”.
The OECD said the economic recovery stalled in 2010, would remain weak in 2011, and interest rate increases will be necessary before the year’s end. The Bank of England’s Monetary Policy Committee had made clear that many of its members believe interest rate increases could be disastrous given the persistent sluggishness of the British economy and lack of domestic demand. The ONS confirmed its earlier provisional figures that the economy grew by just 0.5 per cent in the first quarter after falling into the red zone at the end of last year. The Office of Budget Responsibility has revised its official forecast down four times.
Mr Balls said cuts and the lack of government investment at the time the economy most needs it meant the recovery had been choked off. “Slow growth and more people out of work and on benefits will make it harder to get the deficit down”.
That sentiment was echoed, for different reasons, by China’s Dagong Global Credit Rating Company Limited which said it was downgrading Britain’s sovereign debt by one level from AA- to A+ with a negative outlook because of what it saw as a deteriorating debt repayment capability. It predicted that UK GDP would be 1.3 per cent over the next two years, lower than the average for other developed economies with the deficit staying close to 9 per cent and above.
