BRITAIN ran up a record budget deficit in the first two months of the fiscal year despite a slightly larger than expected drop in borrowing in May, official data showed yesterday, highlighting the tough road ahead for the government as it tries to slash public borrowing.

The Office for National Statistics data showed public sector net borrowing fell last month to 15.156 billion pounds (US$24.554 billion) from 16.463 billion pounds in May 2010 helped by higher indirect taxes such as VAT, just below economists' average forecast in a Reuters poll of 15.75 billion pounds.

"That still leaves progress during the full year so far as disappointing," said Investec economist Philip Shaw. "The deficit has increased, albeit partly down to special factors, compared with the last financial year.

"It's early days but we would be hoping to see more positive effects of the spending cuts coming through in the figures. For now this demonstrates how inappropriate it would be to launch into plan B on fiscal policy," he said, referring to opposition pressure for a softer approach.

Britain's coalition government of Conservatives and Liberal Democrats is one year into a five-year plan to largely eliminate the country's budget deficit, which totaled more than 10 percent of GDP before they came into office in May 2010.

The opposition Labour party has accused the government of trying to cut the deficit too fast, hurting the country's fragile economic recovery.

The British government's preferred measure, PSNB excluding financial sector interventions, fell to 17.415 billion pounds in May from 18.480 billion pounds.

PSNB-ex since the start of the tax year in April now totals 27.404 billion pounds - 1.497 billion pounds more than at the same point in 2010, due to more than 2 billion pounds of one-off bank tax revenue received in April 2010.

The cumulative number is the highest for the first two months of a fiscal year since the ONS's record started in 1993.

Total cash receipts for the government were 33.597 billion pounds in May, up from 29.491 billion pounds a year earlier.