Market News

UK government borrowing jumped to £17.8bn in December, which was above economists' forecasts.

UK borrowing reached £17.8bn in December, which was the highest figure for the month in four years, putting further pressure on Chancellor Rachel Reeves.

Official data released by the Office for National Statistics (ONS) on Wednesday showed that public sector net borrowing — the difference between government spending and income — was £10.1bn higher than the same month in 2023.

This figure was also higher than the £14.1bn forecast by economists polled by Reuters, and the Office for Budget Responsibility's (OBR) estimate of £14.6bn.

Jessica Barnaby, ONS deputy director for public sector finances, said: "At almost £18bn, borrowing last month was the third highest in any December record.

"Compared with December 2023, 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."

This meant that total borrowing costs for the year stood at £129.9bn, compared with £8.9bn in 2023. It also marked the second-highest financial year-to-December borrowing since records began in January 1993.

The ONS data showed that the current budget deficit – borrowing to fund day-to-day public sector activities – was £10.0bn in December, which was £7.3bn more than in the same month in 2023.

Net debt, excluding public sector banks, was estimated at 97.2% of gross domestic product (GDP) in December, inching 0.3% higher than at the end of 2023. This was also the highest level since the early 1960s.

Read more: Surprising UK pay growth could delay Bank of England’s interest rate cuts

The interest payable on central government debt was £8.3 billion in December 2024, which was £3.8bn more than in December 1997.

A recent sell-off in UK government bonds – known as gilts – drove yields higher, which meant the cost of borrowing jumped. This sparked fears that that this will put pressure on Reeves to further raise taxes and cut spending.

Alex Kerr, UK economist at Capital Economics, said that while "market interest rate expectations and gilt yields have fallen in the last week, they are still higher than at the time of the budget and suggest that the chancellor’s headroom against her fiscal rules has been whittled down from £9.9bn in October to £2bn."

He added: "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 26th March."

Reeves announced £40bn in tax rises in the autumn statement in October to help fund spending, which included higher national insurance contributions for employers. A number of retailers have warned of the impact of higher costs to their businesses, as a result of this tax hike, as well as the increase in the national minimum wage.

Joe Nellis, economic adviser at accountancy and advisory firm MHA, said higher-than-expected borrowing meant that the "chancellor finds herself with even less fiscal headroom than previously thought".

"Increased borrowing, combined with the recent rising cost of borrowing, has put more intense strain on central government expenditure," he said.

Concerns have been brewing that "stagflation" — where inflation persists but economic growth stagnates — was taking hold in the UK.

Separate ONS data released last week showed that UK inflation fell unexpectedly in December to 2.5%. Other ONS figures last week then showed that the UK economy returned to growth in November, expanding 0.1%, though this was less than analysts had predicted.

These figures offered some hope that the Bank of England might cut interest rates once again at its next meeting in February.

However, data released on Tuesday showed that UK pay growth rose at a faster-than-expected pace in November, reigniting concerns of lingering inflationary pressures and potentially putting the brakes rate cuts.