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The British government borrowed far more than expected in December, underscoring the scale of the challenge facing Chancellor Rachel Reeves as she tries to restore confidence in her budget plans and turn around a stagnant economy.
Borrowing – the difference between public sector spending and income – stood at £17.8 billion last month, £10.1 billion more than in December 2023, and the third highest highest ever recorded in December, data from the Office for National Statistics showed on Wednesday.
Borrowing in the first nine months of the financial year was £129.9 billion, £8.9 billion more than in the same period last year, and the second highest borrowing between April and December since monthly readings began in January. 1993.
The figures intensify pressure on Reeves, who is seeking to reassure investors after the UK’s decision. borrowing fees this month has reached its highest level since the global financial crisis, threatening its ability to meet a self-imposed fiscal rule under which daily expenses are covered by tax revenues.
Alex Kerr, economist at consultancy Capital Economics, said: “Against a backdrop of slowing GDP growth and high interest rates, December’s borrowing overrun is even more disappointing news for the Chancellor. »
The December increase was explained by an increase in the cost of interest payments on inflation-indexed bonds and a one-time payment to buy back military housing.
It was higher than the £14.1 billion expected by economists polled by Reuters and the £14.6 billion forecast by the Office for Budget Responsibility, Britain’s budget watchdog, in its latest set of projections carried out in October.
UK borrowing costs have fallen since last week’s figures showed inflation slowed down unexpectedly in Decemberand the sell-off in global bonds has eased.
Reeves has promised to outline plans to fix the economy, which grew just 0.1 percent in November after slight contractions in September and October, with businesses accusing Reeves of raising taxes. October budget for dampening confidence and hitting the job market.
The OBR, which must produce two forecasts per financial year, will provide an update on March 26 on whether Reeves is still on track to meet its own borrowing rules.
Given the Budget only gave Reeves £9.9bn of headroom to meet his fiscal rule, Kerr said there was a growing risk the Chancellor would have to cut spending or raise taxes , and that its room for maneuver has been reduced to £2 billion.
Following the release of December’s borrowing figures, Darren Jones, Chief Secretary to the Treasury, said: “Economic stability is vital to our number one mission of generating growth. This is why our budgetary rules are non-negotiable and why we will have an iron fist. on public finances. »
Elliott Jordan-Doak, an economist at consultancy Pantheon Macroenomics, said the OBR’s forecasts remain “subject to significant upside risks”.
“We expect the government to present spending cuts – postponed towards the end of the forecast year – at the next budget event in March. Further tax increases in the upcoming October budget are also a good bet,” he added.
Sterling remained down 0.2 percent at $1.23 after the figures were released. Government securities remained broadly stable, with the 10-year bond yielding 4.59 percent.
In a sign of the pressure on public finances from higher inflation, interest costs rose to £8.3 billion in December, £3.8 billion more than a year earlier and the third highest figure for December since monthly records began. A £1.7 billion payment for military housing buyouts was added to December borrowing.
Tax revenue during the month increased by £4 billion compared to December 2023 to reach £65.5 billion.
Public sector debt, or borrowing accumulated over time, represented 97.2 percent of GDP, remaining at levels last seen in the early 1960s.
