April 18 (Bloomberg) -- Britain had a 10.2 billion-pound ($20.4 billion) budget shortfall in March, a third more than economists forecast, driven by higher capital investment and an increase in spending by state-owned companies.
The gap was the largest for the month since records began in 1993 and widened from 7.1 billion pounds a year earlier, the Office for National Statistics in London said today. The median forecast in a Bloomberg survey of 17 economists was 7.8 billion pounds.
Gilts extended losses amid concern Britain may sink deeper into deficit as a worsening economic slowdown erodes taxes on everything from home purchases to bankers' bonuses. Economists and opposition parties say Chancellor of the Exchequer Alistair Darling has little scope to help the economy by cutting taxes after his Labour government let spending soar since 2000.
``The public finances are in no way ideally positioned for the slowdown,'' said David Page, an economist at Investec Securities in London. ``They've got almost no room to step up borrowing.''
The yield on the two-year government bond, among the securities most sensitive to the interest-rate outlook, climbed 17 basis points to 4.31 percent. Yields move inversely to bond prices.
Below Forecast
The budget deficit for the fiscal year through March was 35.6 billion pounds, less than the 36.4 billion pounds Darling forecast in his budget last month. Borrowing in February was 247 million pounds, 2.4 billion pounds less than first estimated.
Revenue in the last financial year rose 5.7 percent and spending increased 6.1 percent. In March, revenue rose 7.6 percent, helped by a near doubling of corporation tax receipts. Income tax rose 4.4 percent and value-added tax, a levy on sales, rose just 1.7 percent. Spending gained 7.6 percent.
Central government net investment rose 47 percent from a year earlier to 7.5 billion pounds. Borrowing by public corporations outweighed an improvement in the fiscal position of local authorities.
In his March budget, Darling added 20 billion pounds to his deficit forecasts for the four years that began this month as the credit famine deepens a housing market slump and curbs consumer spending.
The value of home loans fell 17 percent in March from a year earlier, the Council of Mortgage Lenders said today. In a separate report, the Bank of England said annual growth in M4, the broadest gauge of U.K. money supply, slowed to 12 percent from 12.4 percent in February.
Optimistic
Darling's forecast of economic growth of as much as 2.25 percent this year may still be too high, economists say. The International Monetary Fund last week predicted an expansion of 1.6 percent, the least since 1992, the year after Britain had its last recession.
``If the IMF's forecasts are correct, then this could add around 10 billion pounds a year to borrowing,'' said Gemma Tetlow, an economist at the Institute for Fiscal Studies in Loondon. ``It would be problematic for the chancellor, as his forecasts give him virtually no room to maneuver against either of his two self-imposed fiscal rules.''
The current budget, which measures a golden rule that the government raises enough tax revenue to cover day-to-day spending and borrows only for investment over the economic cycle, was in deficit by 7.6 billion pounds in the last fiscal year. Net debt stood at 36.7 percent of gross domestic product in March, about 50 billion pounds below the 40 percent ceiling set by the government.
A cash-based measure that indicates how much the government needs to borrow through bond sales was in deficit by 12.7 billion pounds in March. The median forecast in a Bloomberg survey of 22 economists was 18 billion pounds.
The decline from 17.3 billion pounds in March 2007 was partly because departments refrained from a year-end spending spree, the statistics office said. Asset sales and gilt redemptions helped to limit the cash requirement for the fiscal year to 26.6 billion pounds, 9 billion pounds less than a year earlier and below the 33 billion pounds the government forecast.
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