The deficit is already coming down

Alistair Darling quite despicably hid from us the real truth about the public finances: government borrowing peaked in February and has been falling, albeit slowly, since then.

This graph shows the rolling 12-month total for public sector net borrowing as a percentage of GDP (using a combination of NIESR monthly GDP estimates and official ONS figures on quarterly GDP and monthly borrowing – a bit more explanation here):


If you’re sceptical about my blend of two different sets of GDP figures, that’s fine: a clearer fact is that the simple cash total for 12-month borrowing peaked in January, at £146.6bn, and has fallen every month since then, to £141.9bn in May. And during this time, GDP has been growing, so the ratio will have been falling too.

It’s still a very big number, and it needs to come down more quickly.* But as far as the ‘borrowing crisis’ goes, it looks as though the worst has passed without the bond market going nuts and without any maelstrom of extra spending cuts. An ‘Emergency’ Budget next week? No: it’s a choice.

* Update: it's just occurred to me to wonder exactly how quickly the deficit is falling right now. I make it a drop of 0.14% of GDP per month since the peak. So over five years, that rate would bring the deficit down to 1.7% of GDP and eliminate it completely in six. Pretty good.