Britain’s government borrowing exceeded official forecasts by £7.2 billion ($9.6 billion) in the first six months of the fiscal year.
This marks a significant deterioration that highlights the challenge facing Chancellor of the Exchequer Rachel Reeves as she prepares to deliver a crucial budget statement next month.
The figures underscore the fragile state of the public finances, with the budget deficit climbing to £99.8 billion for the six-month period, well above the £92.6 billion that had been forecast by the Office for Budget Responsibility (OBR) in March.
Surging debt costs drive the deficit higher
The primary driver of the worsening fiscal picture was a sharp and substantial increase in debt-interest costs. In September alone, these payments surged by 66% to £9.7 billion.
This was a direct result of a jump in the retail prices index in July, which increased the cost of servicing the government’s large stock of inflation-linked bonds. Higher inflation also pushed up costs related to welfare benefits and public-sector wages.
Borrowing in September was £20.2 billion, the highest for that month since the pandemic and the second-highest on record, though it was roughly in line with the OBR’s monthly forecast.
Chancellor faces a £35 billion fiscal hole
The data puts Chancellor Reeves in a difficult position ahead of the Autumn Budget on November 26, where a fresh round of tax increases is now widely expected.
Higher borrowing costs, combined with recent U-turns on welfare cuts and a predicted productivity downgrade by the OBR, mean the Chancellor now needs to find an estimated £35 billion just to restore the previous headroom against her own fiscal rules, according to analysis by Bloomberg Economics.
The overall deficit is running well ahead of both the OBR’s forecasts and the levels seen a year ago.
A recent correction to value-added tax receipts, which handed the Treasury an extra £2 billion, was not enough to alter the worrying trend. The figures set a difficult backdrop for a budget that will need to address the country’s deteriorating fiscal health.
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