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Public Borrowing Hits £14.4bn In June

(c) Sky News 2012

Public sector borrowing rose again in June in growing evidence that George Osborne's deficit-busting plans are being blown off course.

Government borrowing was £14.4bn last month, up from a £13.9bn the previous year and significantly higher than the £13.3bn that had been expected.

Tax revenues increased by 3.6% to £40.9bn but total Government spending only fell by less than 1% to £52.4bn, according to the Office for National Statistics (ONS).

Income tax was down 0.1% to £10.8bn in June as benefits payouts, including unemployment claims, rose 3.2% to £15.4bn.

Net (Frankfurt: A0Z22E - news) debt excluding financial interventions now stands at £1.04tn, up from £944.6bn in June 2011. Debt as a percentage of GDP is now 66.1%.

The weak figures will be a further headache for Mr Osborne, who is aiming to trim borrowing to £120bn this financial year, down from £127.6bn last year.

The Treasury sought to play them down, with a spokesman saying: "It is too early in the financial year to draw conclusions about the year as a whole.

"This is volatile data and is prone to revision - borrowing for last year has been revised again and is now estimated to be below the OBR's forecast."

But economist James Knightley, from ING Bank, said: "It is clear that the recession is leading to a worsening of the UK's underlying fiscal position and raises more question marks over the effectiveness of the Government's austerity measures."

Shadow chief secretary to the Treasury Rachel Reeves described the figures as "another damaging blow" and accused the coalition of "choking off the recovery".

"Unless the Chancellor takes urgent action to boost the economy now he will end up borrowing billions more to pay for economic failure and cause long-term damage too," she said.

The new figures came hours after the International Monetary Fund warned the Government should slow its spending cuts next year if the economy continues to stall.

The IMF, in its annual report, said that tax rises and spending cuts implemented over the past two years have seen growth drop by 2.5% in total.

The organisation said the coalition should consider introducing increased infrastructure spending in his next budget, which could be funded by further tax reforms, to give the economy a boost.

The IMF has also slashed its growth forecasts for the UK to 0.2% in 2012 and 1.4% for 2013 to reflect its slide into a double-dip recession. Just three months ago, it was predicting 0.8% and 2% respectively.

The group's findings follow an admission from Prime Minister David Cameron that the economic crisis had been far worse than expected and that he cannot envisage a time when austerity measures will come to an end.

Along with the grim data, they pile further pressure on Mr Osborne to consider a "Plan B" on the economy after a difficult few months dogged by criticism of his March Budget.

The Chancellor has vowed to press ahead with his plans to lower the deficit over the next five years despite weak growth but Labour are insisting he should change tack.

Although unemployment has fallen slightly, the softness of the UK economy was underlined on Thursday when figures showed retail sales grew by only 0.1% in June.

The British economy began to contract again at the end of last year and shrank by 0.3% in both the final quarter of 2011 and the first of 2012. GDP figures for the second quarter are expected next week.

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