UK borrowing overshoot keeps the heat on Reeves as budget looms

Britain’s borrowing in the first half of the financial year was the highest on record except during the height of the coronavirus pandemic, keeping up the pressure on finance minister Rachel Reeves as she prepares next month’s key budget.

The overshoot in the April to September period ran above official forecasts, although Reeves was able to take a crumb of comfort from a cut to the overshoot in recent months.

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Government borrowing in the first six months of the tax year totalled £99.8 billion ($133.94 billion), up 13% from a year earlier and £7.2 billion more than forecast by Britain’s budget watchdog.

In September alone, the government borrowed £20.2 billion, pushed up by the costs of debt interest and providing public services which more than offset a rise in tax receipts including Reeves’ from the social security hike for employers.

The September shortfall was only slightly above the projection from the Office for Budget Responsibility whose forecasts underpin government budgets. It was lower than a median forecast of a £20.8 billion deficit in a Reuters poll of economists.

The borrowing in the first six months of the year was the second highest for the period since records began in 1993 and was only bigger in 2020 at the height of the Covid-19 pandemic.

However, the Office for National Statistics revised down government borrowing in the first five months of the financial year by £4.2 billion, around half of which it had previously announced.

Reeves has said she is looking at tax increases and spending cuts in her budget on November 26 to show investors that she can remain on track to meet her fiscal rules.

“The chancellor faces an increasingly difficult balancing act ahead of the autumn budget, with her fiscal headroom all but exhausted by a mix of weaker growth prospects, higher borrowing costs and rising spending pressures,” Nabil Taleb, economist at PwC UK, said.

Reeves wants to balance day-to-day spending with tax revenues by the end of the decade. Tuesday’s data showed the current budget was 71.8 billion pounds in deficit in the April-to-September period, 17% higher than a year earlier.

Reeves said last week she would like a bigger fiscal buffer for meeting her targets than the £9.9 billion of headroom that she previously gave herself, but creating one would involve tough trade-offs on tax and spending.

Sterling was little changed against the US dollar and the euro after the borrowing figures were released.