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The UK 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 fiscal plans and turn around a stagnant economy.
Borrowing – the difference between public sector spending and income – was 17.8 billion pounds last month, 10.1 billion pounds more than in December 2023 and the third highest of any December on record, data from the Office for Statistics showed on Wednesday. National.
In the first nine months of the fiscal year borrowing was £129.9 billion, which was £8.9 billion more than in the same period of the previous fiscal year and the second highest borrowing in the April-December period since monthly records began in January. 1993.
The figures intensify pressure on Reeves who has tried to reassure investors after UK borrowing costs this month climbed to their highest level since the global financial crisis, threatening its ability to meet a self-imposed fiscal rule in which daily expenses are covered by tax coupons.
Alex Kerr, economist at consultancy Capital Economics, said: “Against a backdrop of slowing GDP growth and high interest rates, December’s borrowing overshoot is another disappointing piece of news for the chancellor.”
December’s increase was driven by an increase in the cost of interest payments on inflation-linked bonds and a one-time payment to buy back military housing.
It was above the £14.1 billion expected by economists polled by Reuters and the £14.6 billion forecast by the Office for Budget Responsibility, the UK’s fiscal watchdog, in its latest set of forecasts made in October.
UK borrowing costs have eased after figures last week showed inflation unexpectedly slowed in December and a global bond selloff eased.
Reeves has promised to set out plans to turn around the economy, which grew just 0.1 percent in November after soft contractions in September and October, with businesses blaming October’s budget for Reeves’ tax hikes for cooling confidence and hitting labor market.
The OBR, which must produce two forecasts each financial year, will provide an update on March 26 on whether Reeves is still on track to meet its borrowing rules.
Given that the budget gave Reeves just £9.9bn in her room to meet her fiscal rule, Kerr said there was an increasing risk that the chancellor would have to cut spending or raise taxes and that the space its total 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 to deliver growth, which is why our fiscal rules are non-negotiable and why we will have a iron control. for public finances”.
Elliott Jordan-Doak, economist at consultancy Pantheon Macroeconomics, said the OBR’s forecasts remain “subject to significant upside risks”.
“We expect the government to outline the spending cuts – charged to the end of the forecast year – at the next fiscal event in March. A further tax hike in the next budget in October is also a good bet,” he added.
Sterling was 0.2 percent lower at $1.23 after the figures were released. Bonds were mostly flat, with the 10-year gilt yield at 4.59 percent.
In a sign of the strain on public finances from higher inflation, interest costs were £8.3bn in December, £3.8bn higher than a year earlier and the third highest December figure since monthly records began. A £1.7 billion payment to buy back military housing was added to December’s borrowing.
Tax revenue per month increased by £4bn from December 2023 to £65.5bn.
Public sector debt, or accumulated borrowing over time, was 97.2 percent of GDP, remaining at levels not seen in the early 1960s.
