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The UK government borrowed more than expected in December, underlining the challenge facing chancellor Rachel Reeves as she tries to restore confidence in her fiscal plans and kick-start growth.
Borrowing — the difference between public sector spending and income — was £17.8bn last month, £10.1bn more than in December 2023, and the third highest in any December on record, data from the Office for National Statistics showed on Wednesday.
It was above the £14.1bn expected by economists polled by Reuters, and the £14.6bn forecast by the Office for Budget Responsibility, the UK fiscal watchdog, in its most recent set of projections made in October.
In the first nine months of the fiscal year, borrowing was £129.9bn, which was £8.9bn more than in the same period in the previous fiscal year. It was also the second-highest borrowing in the April to December period since monthly records began in January 1993.
Jessica Barnaby, deputy director for public sector finances at the ONS, said that “spending on public services, benefits, debt interest and capital transfers were all up, while an increase in tax receipts was partially offset by a reduction in National Insurance contributions, following the rate cuts earlier in 2024”.
Reeves has sought to reassure investors after the UK’s borrowing costs this month climbed to the highest level since the global financial crisis, threatening her ability to meet a self-imposed fiscal rule in which day-to-day spending is covered by tax receipts.
Following the release of December’s borrowing figures, Darren Jones, chief secretary to the treasury, said: “Economic stability is vital for our number one mission of delivering growth, that’s why our fiscal rules are non-negotiable and why we will have an iron grip on the public finances.”
The OBR, which has to produce two forecasts every financial year, will provide an update on March 26 on whether Reeves is still on track to meet her own borrowing rules.
UK borrowing costs have eased since figures last week showed inflation unexpectedly slowed in December, and a global bond sell-off abated.
But the government remains under pressure to turn around the economy, which grew just 0.1 per cent in November after mild contractions in September and October.
“While the bond market has calmed in the last week and fears of an emergency mini-Budget have subsided, the chancellor will be very aware of the dissipation of government finances as we head towards the OBR’s economic and fiscal forecast scheduled for 26 March,” said Joe Nellis, economic adviser at MHA, the accountancy and advisory firm.
Sterling remained 0.2 per cent lower at $1.23 following the release of the figures.
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