UK (Parliament Politics Magazine) – UK government borrowing hit £17.8bn in December, a significant rise from predictions, with Rachel Reeves facing pressure to tackle the growing deficit.
Britain’s borrowing increased to £17.8bn in December, well above expectations, forcing Chancellor Rachel Reeves to prepare for budget cuts ahead of the upcoming summer review.
The borrowing rate was £10.1bn higher than December 2023, exceeding the City’s predictions by around 25%, marking the highest December borrowing in four years.
Will Reeves be forced to raise taxes or cut spending to meet fiscal goals?
As reported by The Guardian, Capital Economics warned that the recent figures indicate a significant decrease in Chancellor Rachel’s financial flexibility. While the Chancellor had planned for a £9.9bn buffer in the autumn budget, the new figures suggest it may now be reduced to only £2bn.
The consultancy Capital Economics, stated, “That combined with a weakening economy suggest that, in order to meet her fiscal rules, the chancellor may need to raise taxes and/or cut spending in the next fiscal statement on 26 March.”
The Treasury, aiming to stay within Rachel Reeves’ fiscal framework, has rejected the idea of borrowing or raising taxes and is now considering spending cuts to balance the budget.
What did the Office for National Statistics Deputy Director say about borrowing costs?
The ONS said government spending on services, benefits, and debt interest has increased.
While responding to the rising borrowing costs, the ONS Deputy Director for Public Sector Finances Jessica Barnaby stated, “At almost £ 18 billion, borrowing last month was the third highest in any December on record.”
Ms Barney said that, in comparison to December 2023, there was an increase in spending on public services, benefits, debt interest, and capital transfers. She also highlighted that the rise in tax receipts was partially counterbalanced by a decrease in National Insurance contributions due to the rate cuts earlier in 2024.
How will the Treasury ensure economic stability and growth?
Darren Jones, the chief secretary to the Treasury, stated “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.”
Mr Jones revealed that the government will conduct its first detailed review of public spending in 17 years, centred on eliminating waste and ensuring taxpayer money is used to support its growth agenda.
On March 26, a financial statement will be released, and the autumn budget will follow. The Office for Budget Responsibility is set to evaluate the government’s budget targets during these events.
How Joe Nellis, from MacIntyre Hudson respond to increasing borrowing costs?
Joe Nellis, an economic adviser at consultancy company MHA, stated the rising borrowing costs, along with escalating borrowing costs, have added significant pressure on government expenditure.
Mr Nellis added, “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.”
How did UK borrowing in December 2024 compare to earlier months?
- In November 2024, Britain borrowing remained at £11.2 billion, £3.4 billion lower than the same month in 2023.
- October 2024 saw borrowing rose to £15.5 billion, indicating an increase in borrowing costs leading up to December.
- The borrowing raised by £1.5 billion from September 2023 to £15.2 billion in September 2024.
How the UK borrowing costs are measured?
- Interest paid on government debt, including bonds and other debt instruments.
- Market demand for government bonds.
- Changes in inflation and interest rates.
- Increased government debt issuance.