The latest UK borrowing figures, reveal a significant increase in public sector net borrowing. In December 2024, the UK government borrowed £17.8 billion, which is the highest figure for the month for four years.
This amount was reportedly £10.1 billion higher than the same month last year and exceeded the £14.1 billion forecast by most economists.
The reported rise in borrowing was driven by several factors, including increased spending on public services, benefits, debt interest, and capital transfers. The interest payable on central government debt alone was £8.3 billion, nearly £4 billion higher than the previous year.
Additionally, a reduction in National Insurance contributions following rate cuts earlier in 2024 partially offset the increase in tax receipts.
Chancellor Rachel Reeves faces a challenging fiscal environment, with borrowing costs rising due to lower economic growth, higher public sector wages, and increased benefits payments. The unexpected jump in December 2024’s borrowing highlights the difficulties in balancing the budget and maintaining economic stability. The Chancellor’s budget was one of growth, but employer NI hikes have unravelled her ‘growth’ plan.
Despite the rise in borrowing, government bond prices remained relatively stable, suggesting that traders were not overly concerned by the surge. However, the overall fiscal position remains precarious, with public sector net debt estimated at 97.2% of GDP, the highest level since the early 1960s.
The government has pledged to take a hard line on unnecessary spending and to ensure that every penny of taxpayer money is spent productively.
As the fiscal year progresses, the Chancellor will need to navigate these financial challenges carefully to maintain economic stability and growth.
However, it is anticipated next month, following the January tax income boost, figures will appear favourable for the government, albeit temporarily.