UK borrowing surpasses forecasts as debt reaches 100% of GDP

The UK’s borrowing bill once again exceeded expectations in August, adding pressure on Chancellor Rachel Reeves ahead of Labour’s first budget on 30 October. Read more: UK borrowing surpasses forecasts as debt reaches 100% of GDP

Sep 20, 2024 - 16:00

UK borrowing surpasses forecasts as debt reaches 100% of GDP

The UK’s borrowing bill once again exceeded expectations in August, adding pressure on Chancellor Rachel Reeves ahead of Labour’s first budget on 30 October.

Official data from the Office for National Statistics (ONS) revealed that public sector net borrowing hit £13.7 billion last month, well above the £11.2 billion forecast by the Office for Budget Responsibility (OBR). This pushed the UK’s debt-to-GDP ratio to 100 per cent, signalling a significant fiscal challenge for the government.

The higher borrowing figures were largely driven by increased spending on benefits, which were uprated in line with inflation, along with additional expenditure on government operations. Despite this, the cost of servicing the UK’s debt decreased for the fourth consecutive month, falling by £100 million to £5.9 billion, due to a decline in the retail price index measure of inflation. Tax receipts from VAT, income tax, and corporation tax also saw an uptick compared to the same period last year, while national insurance contributions fell following a rate cut introduced by the previous government.

Labour has pledged not to raise VAT, income tax, or corporation tax, all of which account for the majority of government revenue.

The UK’s overall borrowing has exceeded expectations for three consecutive months and is currently £7 billion higher than anticipated since the fiscal year began in April. Labour, since taking office in July, has pointed to a £22 billion fiscal shortfall left by the previous government.

However, Chancellor Reeves received a £10 billion fiscal boost ahead of her autumn budget plans, after the Bank of England announced it would be selling fewer government bonds back to the market. This reduction in bond sales, part of the Bank’s quantitative tightening strategy, could reduce the losses covered by Treasury cash transfers and provide additional fiscal headroom, according to Goldman Sachs.