UK public sector debt 'to hit £180bn'

UK public sector debt levels are set to balloon to a staggering £180bn (€192bn) in the next financial year as the recession tightens its grip, experts warned today.

Ernst & Young’s influential ITEM Club group of economists forecasts the British government will need to borrow some 12.6% of GDP in 2009/10 to counter a plunge in tax receipts, a rapid surge in unemployment and a sharp increase in spending.

The gloomy prediction comes after official figures earlier this week revealed public borrowing had soared to £9bn (€9.6bn) in February.

The record figure for the month brought borrowing in the financial year so far to £75.2bn (€80.2bn), also the highest since records began in 1993, according to the UK's Office for National Statistics (ONS).

And the ITEM Club outlook suggests a doubling at least of the current year’s figure in 2009/10, which it said would leave little room for further economic stimulus efforts.

“The public finances are continuing to deteriorate at an alarming rate and as the economy continues to shrink, the outlook is bleak,” said the ITEM Club.

“Spending will rise sharply over the coming months as unemployment surges, while the steep fall in output will continue to reduce tax revenues.”

It added: “Given the critical state of the public finances, the Chancellor has few ways to inject resources into the economy. ITEM believes that Alistair Darling should do what he can to support employment while also taking steps to support the UK’s manufacturing base.”

British manufacturers have seen activity slump to its lowest level for nearly 30 years, with a key industry survey this week revealing the majority of firms believe there is still worse to come.

Meanwhile, UK unemployment figures also revealed the number of jobless had breached the two million mark for the first time in more than a decade.