Public borrowing down - but Osborne sticks to cuts

The Government today said it must press on with its unprecedented cuts to public services despite surprisingly upbeat public borrowing figures.

Public-sector net borrowing came in way below government forecasts at £141.14 billion for the last financial year, down from £156.5 billion in 2009-10. The Government prediction was for £145.9 billion.

Although still eye-wateringly high, the figures were seen as giving some support to those, such as the National Institute of Economic and Social Research, who claim Chancellor George Osborne's cuts are unnecessarily fierce.

Critics have accused the government of painting too gloomy a picture of the economy to soften up public opinion for cuts driven more by Conservative ideology than real economic need.

But a Treasury spokesman claimed the figures showed the Government's cutbacks were already starting to work, adding: "We need to stick to our plan to pay off the nation's credit card over the course of this parliament."

He cited Monday's warning from Standard & Poor's about the need for the US to get a grip on its deficit as proof of why cuts have to be made even in the largest economies.

Osborne has said he wants to eliminate the bulk of the deficit by April 2015 with the toughest cuts in spending since World War Two. Opponents, including the Labour party, have argued the pace of cuts risks derailing the recovery.

A raft of consumer-facing companies ranging from Mothercare to Britvic, whose bosses wrote an open letter last October claiming the cuts were vital and would boost the economy, have since issued profit warnings.

Official figures for March today on the state of the High Street showed food sales were up but appetite for other goods was sluggish. Sales at garden centres and sports shops were stronger but that was put down to the warmer weather compared with the year-earlier figure. David Kern, chief economist with the British Chambers of Commerce, said: "Although better than expected, these retail sales figures follow a disappointing fall in February, so we cannot underestimate the continued fragility of the economic recovery."

The figures were unlikely to change the Bank of England's monetary policy committee's majority view that interest rates should not go up soon.

Economists are increasingly predicting rate rises may not happen at all this year.

Key will be next week's official GDP figures for the first quarter of the year. Barclays Capital lowered its forecasts from 0.7% to 0.5% as households have been spending less.