UK Government debt hits record levels

Data released by the Office for National Statistics today shows in March the public sector had a deficit of £14.8bn and net borrowing of £23.5bn. At the end of the month, net debt was £890bn or equivalent to 62% of GDP.

Net borrowing for the first quarter was £35.5bn, with net debt at £771.6bn, or 53.8% of GDP.

Over the financial year April 2009 to March 2010, the public sector deficit was £107.6bn, almost £60bn higher than the previous year. Net borrowing was £152.8bn, and excluding financial interventions was £163.4bn.

Jonathan Loynes, the chief European economist at Capital Economics, says the figures show a full-year deficit, excluding financial interventions, of £163bn, which is £4bn below Alistair Darling's Budget forecast of £167bn.

However, he says it is important to remember this is still an enormous level of debt.

"The big picture is that this is still the biggest budget deficit since the Second World War and on a rough par with that of Greece," he says.

"With all [political] parties' fiscal plans based on extremely optimistic economic assumptions and unspecified spending cuts, a further sizeable fiscal squeeze will still be needed after the election, whoever is in charge."

Sterling rallied against the US dollar and euro in response to the data, from a pre-announcement figure of $1.5420 to $1.5445 and against the euro from €1.1505 to €1.1520.

Mark Bolsom, head of the Travelex UK Trading Desk, says, "The best we can say about this figure is that the Government will be massively relieved they haven't overshot their target and offers some encouragement before GDP comes out tomorrow. But frankly, moderate improvement is not what is needed.

"The markets will be in limbo until after the General Election and they need to know how the deficit is going to be slashed. That's the defining issue. Public spending has got to be cut and taxes will probably have to go up and the markets need to know when.

"Retail sales and mortgage approvals have also gone up this morning, but these figures are not game changing. The UK's burgeoning deficit really is the key issue."