More red ink for Chancellor George Osborne

The Chancellor was able to confound the opposition last month, unveiling new borrowing forecasts which showed the deficit falling this year - against all expectations.

Today's borrowing statistics for December don't bring a lot of new information, but they are slightly worse than expected.

Despite the array of special factors helping to pull the deficit down, it wouldn't take much more bad news for Ed Balls to have the last laugh when George Osborne is forced to reveal new forecasts at the time of the Budget in March.

One piece of good news for the Chancellor: borrowing in the months before December has been revised down. But total borrowing since April is still running about 7% above the same months of 2011.

Even if the government managed to borrow the same amount in the last three months of the tax year as it did the previous year, borrowing for 2012-13 would be just under £129bn, significantly above the £121bn deficit for 2011-12.

As we know, that's not the whole story, because there are lots of one-off factors acting to pull down the final figure for 2012-13, including the Royal Mail pension fund transfer and the debt interest now being transferred to the Treasury by the Bank of England.

No progress

Image copyright Credit Suisse

Excluding all of those extras, the Office for Budget Responsibility forecast in December that borrowing would fall by just over £1bn in 2012-13, to £120.3bn - and only with the help of money being raised from mobile phone operators after the auctioning the 4G spectrum.

It might. But the best that can be said, on the basis of these figures, is that it will be a very close run thing. Most independent economists in the city seem to think that borrowing will overshoot - and that Ed Balls will be able to say in March that the deficit has risen in 2012-13, after all.

So much for the political theatrics. The more important point for all of us, highlighted in a useful graph by Credit Suisse (above), is that the government has not really made any progress in cutting the deficit since the start of 2012.

The deficit reduction effort has more or less stalled, along with the broader economy. You can expect the ratings agencies to be paying nearly as much attention to this inconvenient truth as Ed Balls is.