Government borrowing rise puts UK's AAA rating under threat

Extra £15.4bn of borrowing in December piles renewed pressure on Britain's coveted triple-A credit status

Britain's coveted AAA credit status came under renewed pressure on Tuesday after official figures pointed to higher than expected public sector debts last month.

The government borrowed an extra £15.4bn in December, higher than forecast by most analysts and, with three months still to go, almost hitting the total forecast for the full financial year.

Unless there is a large jump in tax receipts in January, credit ratings agencies are expected to take a pessimistic view of the UK's public finances and downgrade its credit status.

James Knightley, an analyst at ING, said there was little to please the Treasury after borrowing figures of £15.2bn in December, against £14.8bn in the same period last year, according to the Office for National Statistics.

Knightley said the UK's triple-A rating was under pressure and was likely to follow the US and France, which have already been downgraded.

"At first glance the cumulative budget deficit for the financial year to date appears to have shown a decent improvement this year – £78.5bn versus £99.3bn for the same period in full year 2011/12," he said.

"However, this is purely down to the transfer of assets from the Royal Mail pension fund, which was absorbed by the state. It will get a further boost when then Treasury receives the interest the Bank of England had earned on its holdings of gilts bought for its quantitative easing programme. Strip these factors out and there is unlikely to be any underlying improvement in financial year 2012/2013 versus 2011/12."

Knightley emphasised that the government's problems centred on a dearth of tax receipts rather than an explosion in spending.

"The disappointment has come from the tax side mainly, with income tax revenues, corporation tax revenues and VAT revenues all down on the same period for financial year 2011/12," he said.

"This highlights the weak state of the UK economy and the fact that austerity measures are failing to generate the improvement in government finances that were hoped for."

The Office for Budget Responsibility has forecast that the UK's total borrowing for the financial year 2012/13 will decline after a series of one-off items are added to tax receipts, including the expected £4.5bn profit from the sale of 4G mobile phone licences.

The ONS said it was possible that these one-off items and a rise in tax receipts in January could bring the overall debt figure within the OBR's £80.5bn forecast. The ONS said UK's debt pile had risen to £1.11tn or 70.7% of GDP.