Chancellor George Osborne was "spared blushes" thanks to a slightly better-than-expected outturn for last year's public finances, economists said, after official data showed the deficit edged lower.
In a week that will reveal if the UK has slipped into an unprecedented triple-dip recession, there was some relief for the Treasury from news the budget gap just beat market expectations.
The deficit for the financial year 2012-13 also met predictions by the government's independent forecaster, the Office for Budget Responsibility (OBR), saving the government further embarrassment after a series of attacks on its austerity drive in recent days.
Still, economists said the gap in the public finances was way above levels envisaged when the austerity drive was launched. Echoing criticism from the International Monetary Fund, they also warned it was unlikely to improve much over this year.
"The UK public finances data spares the chancellor's blushes," said Martin Beck at Capital Economics.
"But the fact that borrowing has come in a tiny bit under the OBR's forecast – which, of course, was heavily revised up during the course of the last fiscal year – is neither here nor there. The big picture is that the government still ran an underlying deficit of almost 8% of GDP. And note that in the first forecast produced by the OBR for the present government back in June 2010, borrowing in 2012/13 was expected to be only £89bn."
The Office for National Statistics said public sector borrowing came in at £120.6bn in 2012-13, £300m lower than in 2011-12, once special factors such as the transfer of the Royal Mail pension fund and profits from quantitative easing were excluded. The full-year figures were published with data showing a better-than-expected outturn for March.
The OBR, the Treasury's independent forecaster, said at the time of the March budget that it expected an unchanged annual deficit of £120.9bn, on that measure.
The figures on Tuesday mean George Osborne has, by a whisker, achieved his promise that his austerity measures would bring year-on-year cuts in the UK's annual deficit. They also showed government spending rose at a slightly slower pace than the OBR had forecast.
The official data come just days after Fitch Ratings became the second major international agency to strip the UK of its top-notch credit rating.
In a blow to the government, Fitch cut the rating to AA+ from AAA, citing a weaker economic and fiscal outlook.
The government also came under pressure from the IMF last week, which urged Osborne to rethink his austerity strategy in the wake of weak economic figures.
Critics of the government's austerity drive say it risks being self-defeating by knocking growth so much that income from various taxes will fall while spending on benefits will have to rise.
Economists noted the latest public finance data showed taxes on income and wealth fell last year while income from North Sea oil production was weak.
"The big picture is that fiscal consolidation has got stuck in the mud of near-zero GDP growth," said David Tinsley, UK economist at BNP Paribas.
"The fiscal consolidation effort has blown well off course over the last few years. Largely those winds have been coming from Europe, but at least some - the failure to sort the banking system out for example - are home grown."
The Treasury sought to highlight the improvement in the deficit on a year earlier.
"Though it is taking time, the government is fixing this country's economic problems. The deficit is down by a third, a million and a quarter new private sector jobs have been created and interest rates are at near-record lows," said a spokesperson.
But the opposition Labour party seized on the "essentially" unchanged picture for the public finances.
"These figures show that the government's failed economic policies have been totally self-defeating as a flatlining economy has seen deficit reduction grind to a halt," said Chris Leslie MP, Labour's shadow financial secretary to the Treasury.
Official data for first quarter GDP are due on Thursday and economists on the whole believe the UK will have eked out some growth, thereby narrowly avoiding a triple-dip recession.
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