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UK borrowing rises to worse-than-expected £18bn in August UK borrowing rises to worse-than-expected £18bn in August
(about 3 hours later)
Figure comes as Treasury prepares budget that is expected to include tax rises to plug yawning deficitFigure comes as Treasury prepares budget that is expected to include tax rises to plug yawning deficit
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The UK government borrowed more than expected last month, official figures show, adding to pressure on the Treasury in the run-up to the autumn budget. UK government borrowing rose to the a five-year high in August, official figures show, fuelling growing expectations for Rachel Reeves to raise taxes at the autumn budget.
Figures from the Office for National Statistics (ONS) showed public sector net borrowing – the difference between public spending and income – rose to £18bn in August, £3.5bn more than in the same month a year earlier.Figures from the Office for National Statistics (ONS) showed public sector net borrowing – the difference between public spending and income – rose to £18bn in August, £3.5bn more than in the same month a year earlier.
The reading was above City predictions for a deficit of £12.75bn and forecasts from the Office for Budget Responsibility of £12.5bn. Dealing a blow for the chancellor as she prepares for the 26 November budget, the reading was above City predictions for a deficit of £12.75bn and forecasts from the Office for Budget Responsibility (OBR) of £12.5bn.
Grant Fitzner, the ONS chief economist, said the figure was the highest August borrowing total since the height of the Covid pandemic. “Although overall tax and national insurance receipts were noticeably up on last year, these increases were outstripped by higher spending on public services, benefits and debt interest.” On top of upward revisions to previous months, total borrowing for the financial year to date jumped to £83.8bn, also the highest level since the height of the Covid pandemic in 2020. The total was £16bn higher than in 2024 and above a £72.4bn forecast from the OBR.
On top of upward revisions to previous months, total borrowing for the financial year to date rose to £83.8bn, also the highest level since 2020. The total was £16bn higher than in 2024 and above a £72.4bn forecast from the OBR. The pound fell against the dollar after the figures were released on Friday morning, slipping by half a cent to trade at about $1.35, while UK government borrowing costs rose on the financial markets.
The chancellor, Rachel Reeves, is widely expected to present a package of tax rises in her 26 November budget to offset deteriorating economic forecasts and plug a deficit that some estimates say could be up to £40bn. The OBR said the overshoot in the ONS data was mainly driven by upward revisions to estimates of local authority borrowing. In addition, VAT and other receipts were lower than expected in the month of August.
James Murray, the chief secretary to the Treasury, said: “This government has a plan to bring down borrowing because taxpayer money should be spent on the country’s priorities, not on debt interest. The independent Treasury watchdog said it expected a lower level of borrowing in the second half of the financial year, amid predictions for a rise in capital gains tax receipts and lower levels of debt interest.
“Our focus is on economic stability, fiscal responsibility, ripping up needless red tape, tearing out waste from our public services, driving forward reforms, and putting more money in working people’s pockets.” However, economists warned that a weak economic outlook, elevated borrowing costs, and expected downgrade in the OBR’s productivity forecasts would force Reeves to raise taxes or cut spending if she wanted to keep within her fiscal rules.
Mel Stride, the shadow chancellor, said: “Keir Starmer and Rachel Reeves are too weak and distracted to take the action needed to reduce the deficit. The chancellor has lost control of the public finances, and Labour’s weakness means much needed welfare reforms have been abandoned.” “Taxes will almost certainly need to rise if the fiscal rules are to be met,” said Matt Swannell, chief economic advisor to the EY Item Club. “A combination of gilt market stress and reversals on welfare reform has used up the thin margin for error in the government’s current spending plans.”
The borrowing figures come a day after the Bank of England kept interest rates unchanged at 4% and scaled back its multibillion-pound bond disposal plan to avoid distorting jittery financial markets. The consultancy Capital Economics forecast the chancellor would need to raise about £28bn, mostly through higher taxes, if she wanted to maintain the £9.9bn buffer held against the fiscal rule at the spring statement.
Britain’s long-term borrowing costs have hit the highest level in 27 years, fuelled largely by global factors but also investor worries over the strength of the UK economy and the public finances. However, the Bank’s programme to reduce its stock of government bonds, known as “quantitative tightening” has also played a role.
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Rising borrowing costs have added to the pressure on the government finances, alongside higher levels of spending on public services and benefits as pay rises and inflation increase running costs. James Murray, the chief secretary to the Treasury, said the government had a plan to bring down borrowing.“Our focus is on economic stability, fiscal responsibility, ripping up needless red tape, tearing out waste from our public services, driving forward reforms, and putting more money in working people’s pockets.”
The ONS said central government debt interest rose to £8.4bn in August, £1.9bn higher than in the same month a year earlier. The latest snapshot from the ONS showed the exchequer benefited from rising national insurance receipts, reflecting the chancellor’s £25bn increase in the rate paid by employers at her first autumn budget.
Nabil Taleb, an economist at PwC UK, said: “Months of high borrowing and the political challenge of cutting spending have all but wiped out the chancellor’s headroom. However, the increase was outstripped by higher spending on public services, benefits and debt interest.
“Gilt yields, the effective cost of financing government debt, have also surged this month to their highest level in decades. Broader economic conditions are offering little relief.” Britain’s long-term borrowing costs have hit the highest level in 27 years, fuelled largely by global factors but also investor worries over the strength of the UK economy and the public finances.
. The ONS said central government debt interest rose to £8.4bn in August, £1.9bn higher than in the same month a year earlier.
The figures come a day after the Bank of England kept interest rates unchanged at 4% and scaled back its multibillion-pound “quantitative tightening” plan to dispose of billions of pounds in UK government bonds.
The Bank disposed of £100bn last year through a mixture of sales and allowing maturing debt to expire. Economists warned this could contribute to the UK’s rising borrowing costs.
On Thursday the central bank said it would scale back its plan to £70bn for the year ahead. However, fewer bonds will mature in the next 12 months. As a result the Bank is increasing its active sales to £21bn, even though it has a lower target overall.
Mel Stride, the shadow chancellor, said: “Keir Starmer and Rachel Reeves are too weak and distracted to take the action needed to reduce the deficit. The chancellor has lost control of the public finances, and Labour’s weakness means much needed welfare reforms have been abandoned.”