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The UK borrowed less than expected in December, offering some respite for chancellor Rachel Reeves after a year marked by tax rises.
Public sector net borrowing totalled £11.6bn, below the £13bn forecast by economists polled by Reuters and 38% lower than in the same month a year earlier, according to figures published by the Office for National Statistics (ONS).
The data come after Reeves raised taxes again in her autumn budget, partly to rebuild headroom against her fiscal rules. For the first nine months of the fiscal year that began in April, borrowing reached £140.4bn, some £300m lower than in the same period a year earlier.
“Borrowing in December was substantially down on the same month in 2024, as a result of receipts being up strongly on last year whereas spending is only modestly higher,” said Tom Davies, senior statistician at the ONS.
“However, across the first nine months of the financial year as a whole, borrowing was fractionally lower than in the same period in 2024,” he added.
A rise in tax revenues, driven largely by higher income tax and national insurance receipts, helped to narrow the deficit last month. The ONS said government tax revenues increased by £7.7bn from a year earlier to £94bn in December, while public spending rose by £3.2bn to £92.9bn over the same period.
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The ONS said the current budget deficit was £5.8bn in December, while public sector net debt was estimated at 95.5% of GDP. The government was also estimated to have paid £9.1bn in debt interest to its lenders over the month.
Chief secretary to the Treasury, James Murray, said: “Last year we doubled our headroom and we are forecast to cut borrowing more than any other G7 country with borrowing set to be the lowest this year since before the pandemic. It cannot be right that £1 in every £10 we spend goes on debt interest – which could be better spent on our nurses, police officers and teachers – that’s why we’re tackling it.”
“We are stabilising the economy, reducing borrowing, rooting out waste in the public sector and making sure that public services deliver value for taxpayers’ money.”
Nevertheless, the ONS said the December borrowing figure represented the 10th highest for the month since records began in 1993, not adjusted for inflation. And it remains higher than December 2023, when borrowing stood at £8.1bn.
Lindsay James, investment strategist at Quilter, said the figures showed the pressures facing the government.
“While all eyes remain on Davos and the implications of president Trump’s diplomatic style, the Office for National Statistics has provided the government with a reminder of the stakes at play with the latest borrowing figures,” she said.
“Borrowing for the financial year has reached £140.4bn, marginally down on last year, but still the third highest on record. The good news is that borrowing for December was down 38% on last year, but the government continues to need to borrow to fund day to day spending and this shows no signs of stopping any time soon.”
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James added that recent market moves had been more favourable for the UK. “The good news for the UK economy is the yield premium on borrowing compared to developed market peers has narrowed somewhat in recent weeks,” she said, pointing both to global market volatility and comments from Reeves at Davos committing to no further significant tax rises.
She cautioned, however, that such commitments had been reversed before and that the economy had a history of false dawns, citing last year’s brief spurt of growth that faded quickly. Still, she said expectations that inflation could fall faster from Q2, alongside a weakening labour market and a tilt towards shorter term government bond issuance, had created “a backdrop supportive of lower yields on long term bonds”.
“The government will be hoping diplomacy can help calm any further economic storms as Trump promises a fresh wave of tariffs,” James said. “But as we have seen, the global economic picture can change in a whim, and as such the UK needs to get the economy humming once more so that it is in control of its own destiny. Until that point, and while borrowing remains very high, the Treasury remains in a very tight spot when it comes to meeting the fiscal rules.”
The ONS said that the government spent £9.1 billion repaying investors that had purchased its debt, up by £200m compared to December 2024.
“Higher interest rates continue to pose a challenge to the UK’s public sector finances,” Dennis Tatarkov, senior economist at KPMG UK, said.
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