Wed Nov 21, 2012 5:14am EST
By David Milliken and Olesya Dmitracova
LONDON Nov 21 (Reuters) - Britain borrowed much more than expected in October, making finance minister George Osborne's bid to reduce the deficit and shunt the economy away from potential stagnation much harder to achieve.
The numbers are the last figures to be released before Osborne presents his twice-yearly fiscal update on Dec. 5, and -- after a positive surprise in September -- extend the borrowing overshoots seen for most of the tax year.
Separately, minutes of the last Bank of England rates meeting showed little appetite for more stimulus, cutting off at least for now that avenue for growth support for the economy.
It all follows warnings by Bank of England Governor Mervyn King last week that Britain faces a period of weak growth and rising inflation.
The Office for National Statistics said the government's preferred measure, public sector net borrowing excluding financial sector interventions, came in at 8.604 billion pounds in October, up from 5.937 billion pounds in October 2011.
This was well above economists' average forecast of 6 billion pounds, and higher even than the most pessimistic estimate in a Reuters poll of 19 analysts.
Britain's government has made reducing a budget deficit of that peaked at more than 11 percent of national income its top political priority since it came to power in May 2010, but slow economic growth has made this a major challenge.
Further stimulus from the Bank of England also looks unlikely in the short term, as minutes of November's policy decision, released earlier on Wednesday, showed that policymakers voted 8-1 against any further stimulus.
"Even if the (government's budget watchdog) assumes that the trend improves a bit, it will still be pretty touch and go whether the Chancellor will be expected to meet his fiscal rules without increasing his austerity measures further," said Vicky Redwood of Capital Economics.
A near 10 percent fall in corporation tax receipts, in a month when there is usually a heavy inflow, as well as a rise in day-to-day departmental spending, accounted for much of the year-on-year increase.
For the tax year to date, PSNB excluding financial sector interventions and one-off effects from the transfer of Royal Mail pension assets came in at 73.3 billion pounds, 5.0 billion pounds higher than a year before.
Last month, the ONS estimated that borrowing for the first six months of the tax year was around 2.6 billion pounds higher than a year earlier, a much smaller overshoot than seen previously months.
October's rise in the overshoot makes it less likely that the government's independent budget watchdog will forecast that Osborne is still on track to meet the goal of reducing full-year public sector net borrowing to 120 billion pounds.
Reaching the Office for Budget Responsibility's forecast requires Britain's budget deficit to fall by 1.2 percent on the year, but so far this tax year it is 7.4 percent higher than at the same time in 2011.
However, Britain's finance ministry said borrowing was still under control.
"The economy is healing, but it still faces many challenges. These numbers illustrate that, but also show the government's plans to bring spending under control are on track for the year," a finance ministry spokesman said.
When it came to power in 2010, the government had originally planned to eliminate the structural budget deficit by 2015 with a tough programme of spending cuts and tax rises.
But a weak economy has forced it to extend austerity by another two years and Prime Minister David Cameron has warned austerity could last even longer -- until 2020.
In the last tax year, Britain's budget deficit totalled 8.0 percent of GDP, down from a peak of 11.2 percent just before Britain's coalition of Conservatives and Liberal Democrats came to power in 2010.
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