The Credit Crisis is now about to become a Debt Crisis.
British finances to be 'worse than Greek deficit'
Sterling dived as investors digested the ballooning deficit figures
* 140 Comments
The Government is on course to run up a higher budget deficit this year than Greece after dire figures on the public finances today showed that it borrowed £4.3 billion more than it received in taxes in January, the first time this has happened.
January is usually a bumper month for tax receipts as people submit their tax returns and corporation tax payments fall due.
However, a steep decline in income tax and capital gains tax payments, coupled with a sharp rise in interest payments to cover the Government's debts, forced the Treasury to borrow money to balance its books.
The dire data confounded economists' expectations of a surplus of £2.8 billion, and falls far short of the £5.3 billion surplus recorded in January last year.
* Taxman targets 100,000 top earners for millions
* Ruling leaves thousands facing huge tax bills
* Labour and the Tories square up over deficit
It is the first January deficit since records began in 1993.
Jonathan Loynes, chief European economist for Capital Economics, said: "Extrapolating the trend forward now points to a full-year borrowing figure of about £180 billion, some £10 billion higher than the Chancellor’s Pre-Budget Report forecast of £170 billion on this borrowing measure.
"This would be the equivalent of around 12.8 per cent of GDP, just in excess of Greece’s 2009 deficit of 12.7 per cent.
"January’s UK public finances figures have further underlined the need for more decisive action to improve the fiscal position when the economy is strong enough to withstand it."
However, the country's total debt, which climbed to £848 billion, or 59.9 per cent of GDP, is still far below Greece's total debt, which is running at about 113 per cent of GDP.
Sterling dived as investors digested the data, with the pound sliding 0.4 per cent against the dollar to $1.5601 after falling to a session low of $1.5575.
However other economists were more upbeat on their outlook for the country's finances. David Page, an economist at Investec, expects that the total borrowing figure for the year will be around £168 billion.
On the Treasurys favoured measure of Public Sector Net Borrowing excluding financial interventions (PSNBx), he expects the total borrowing to reach £175 billion, below the Chancellor's forecast for £178 billion.
But Mr Page said that the country's finances remained in a perilous state.
"The task of the next government will be to repair the public finances and restore a path of fiscal rectitude. We remain convinced that this requires a sharper fiscal tightening than envisaged in the Pre-Budget Report."
This was echoed by Ross Walker, UK economist at Royal Bank of Scotland. "The UK public finances remain in a dire state and these data serve to emphasise the need for a credible medium-term fiscal strategy."
This came as new figures from the Council of Mortgage Lenders (CML) showed that gross mortgage lending dropped by nearly a third to to £9.1 billion in January, down 21 per cent from January last year.
This is the lowest level of mortgage lending since February 2000 and represents a fall from £11.5 billion in January 2009, according to the CML.