Britain's public finances suffered their worst year since World War Two in 2009/10, even though borrowing was somewhat less than the government had forecast, official data showed today.
The Office for National Statistics said the government's preferred measure of public sector net borrowing hit £163.4 billion in the fiscal year that ended in March.
That was up from £96.5 billion in 2008/09 and is equivalent to 11.6 per cent of GDP.
The deterioration in Britain's public finances since the start of the financial crisis has been a key point of contention in the political campaign ahead of a May 6th national election.
The Labour government, trailing in opinion polls, had forecast in its March budget that full year borrowing would reach £166.5 billion - which itself was a downward revision from its December estimate of £178 billion.
Sterling rose against the dollar and the euro after the better-than-expected figures.
"It's entirely possible that the trajectory of the public finances won't be as bad as we thought, but it's still not a good place to start from," said Peter Dixon, economist at Commerzbank.
March's borrowing took total public sector net debt, including interventions to prop up Britain's financial sector, up to £890 billion or 62 per cent of GDP, the highest for a financial year since records began in 1974/75.
All Britain's main political parties are agreed on the need to cut the record deficit but the opposition Conservatives say they would start this year while ruling Labour and the Liberal Democrats would wait until next year, saying to act now would imperil a fragile economic recovery.
"The undershoot may heighten the debate between the parties ... but the big picture is that this is still the biggest budget deficit since the Second World War and on a rough par with that of Greece," said Jonathan Loynes at Capital Economics.
"With all parties' fiscal plans based on extremely optimistic economic assumptions and unspecified spending cuts, a further sizeable fiscal squeeze will still be needed after the election, whoever is in charge."
The main concern for investors is that opinion polls are correct in predicting a hung parliament - where no one party has an overall majority - producing a weak government without the mandate to push through painful fiscal tightening.
The ONS also released March retail sales figures which showed Britain's tentative economic recovery remained on track ahead of first-quarter GDP figures due tomorrow, which could be a key staging post in the election campaign.
Retail sales volumes rose by 0.4 per cent in March versus 2.5 per cent in February, giving an annual increase of 2.2 per cent.
"This is all consistent with a healthy GDP growth figure of 0.4 per cent quarter-on-quarter for Q1 2010," said James Knightley, UK economist at ING.
On the debt side of Britain's ledger, the ONS said total public sector net borrowing in March rose to £23.5 billion from £20.060 billion in March last year, in what is typically a heavy-spending month as civil servants rush to use up funds before the end of the fiscal year.
This was the highest monthly borrowing for March since records began in 1993, and just below private-sector economists' consensus forecast of 24 billion pounds.
For the fiscal year as a whole, borrowing on this wider measure totalled a record £152.8 billion, the highest since annual records started in 1946/47.
The alternative public-sector net cash requirement measure, which tracks immediate government funding needs and drives government bond issuance, showed borrowing of £25.8 billion in March, well below economists' forecasts of £32 billion.
For the fiscal year, PSNCR totalled £134.3 billion, up from £59.6 billion in the 2008/09 fiscal year, and the highest since records began in 1963/64.
Reuters