Public borrowing in the United Kingdom rose sharply in December, adding to the economic challenges facing Prime Minister Keir Starmer and the Labour government.
According to the Office for National Statistics (ONS), public-sector borrowing reached £17.8 billion ($21.9 billion) last month, an increase of £10 billion compared to December 2023. This marks the third-highest December borrowing on record, said Jessica Barnaby, deputy director for public-sector finances at the ONS.
The figures intensify pressure on Chancellor of the Exchequer Rachel Reeves, who has faced market concerns over the government’s budget policies, which include tax hikes and higher borrowing to spur economic growth.
The UK economy has struggled with a declining pound and a temporary rise in government bond yields, fueled by global increases in bond rates. “Market interest rate expectations and gilt yields remain higher than at the time of the budget, reducing the chancellor’s fiscal headroom,” said Alex Kerr, UK economist at Capital Economics.
He warned that a weakening economy could force the government to either raise taxes or cut spending in its next fiscal statement to adhere to its fiscal rules.
The Labour government’s fiscal policy aims to fund day-to-day spending with revenue rather than borrowing. Senior Treasury official Darren Jones reaffirmed the government’s commitment to fiscal discipline, stating, “Economic stability is vital for our mission to deliver growth. That’s why our fiscal rules are non-negotiable and why we will maintain an iron grip on public finances.”
The ONS attributed the rise in borrowing to increased spending on public services, welfare benefits, and debt interest payments.
Britain’s fiscal watchdog, the Office for Budget Responsibility, is set to release its financial forecast on March 26, which will assess whether the government is meeting its borrowing targets.
Labour returned to power in July 2024 after 14 years of Conservative rule, inheriting an economy grappling with slow growth and rising inflation.
