Blow to Chancellor Rachel Reeves after surprise UK borrowing jump | Global News Avenue

Government borrowing increased more than expected in December, reaching the highest level in four years, putting greater pressure on Britain’s finances.

Official figures showed borrowing (the difference between spending and tax receipts) was £17.8bn last month, £10.1bn more than in December 2023.

Public services, benefits and interest payments on debt have all increased this year, while a rise in tax receipts has been offset by cuts to national insurance under the previous government.

Chancellor Rachel Reeves is under pressure as a recent spike in borrowing costs threatens the government’s economic plans. Last week’s data showed the UK economy has flattened.

The government says economic growth is its priority in order to improve living standards, but concerns about the health of the UK economy have fueled speculation Reeves could cut spending on public services.

Government borrowing totaled 17.8 billion pounds last month, well above the 14.6 billion pounds predicted by the UK’s official forecaster, the Office for Budget Responsibility.

Interest on government debt hit £8.3 billion, the third-highest December interest repayment since monthly records began in 1997.

Government debt rates earlier this month The surge was partly driven by worries about Britain’s economic outlook, before receding.

On Wednesday, the interest rate on 10-year British government debt fell back to 4.5%, close to the level at the beginning of the year.

During an appearance at the World Economic Forum in Davos, Switzerland, Reeves downplayed the impact of recent market turmoil on her compliance with self-lending rules, which are designed to safeguard the credibility of financial markets and taxpayers.

The Chancellor of the Exchequer was specially invited to attend the event in a bid to attract investment in the UK from the world’s largest business leaders and financiers.

But Alex Kerr, UK economist at Capital Economics, said that against a backdrop of weak growth and high interest rates, “December’s borrowing overshoot is a further step for the chancellor.” Disappointing news.”

He added that while UK borrowing costs had fallen, they were still higher than at the time of the Budget.

Kerr said weak economic growth suggested Reeves “may need to raise taxes and/or cut spending” in March to comply with her own rules.

Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said he also expected the chancellor to outline public spending cuts in March, adding “Further tax increases in the next budget in October are also a good option.”

Reeves has previously said she would not “Come back with more borrowing or more taxes” after her first budget in October.

Businesses will bear the brunt of the tax increase that comes into effect in April, as national insurance rates rise and employer thresholds are lowered.

Businesses have repeatedly warned that the extra costs, coupled with minimum wage increases and reduced business rates relief, could hit UK economic growth, with employers expecting less cash to spend on pay rises and creating new jobs.

On Wednesday, the chancellor signaled she would support Heathrow expansion to boost economydespite environmental concerns.

The Treasury is considering whether to support a third runway at Heathrow and approve a second at Gatwick, but such projects won’t start for some time.

Additionally, Reeves said that following economic growth, regulators need to “regulate growth.” Government ministers on Tuesday sacked the chairman of the UK’s competition regulator.

Reeves said Marcus Bokkerink, chairman of the Competition and Markets Authority (CMA) since 2022, “recognises that it is time for a reset”.

Government sources said that before Mr Bocklinck’s departure, the CMA submitted an idea on how to stimulate economic growth, but the results were ineffective.

Treasury Department Principal Secretary Darren Jones said the government’s borrowing rules are “non-negotiable” in order to maintain economic stability and growth.

He added that the government would “root out waste and ensure every penny of taxpayers’ money is spent effectively”.

The borrowing amount was the third highest in December since monthly records began in 1993. This includes a one-off payment of £1.7bn from the Government to the private sector to buy back military accommodation.

The increase in borrowing means that, with most of the financial year gone, the gap between government spending and tax receipts is £4 billion higher than official forecasts.

However, that number includes many estimates, which are often revised later.

Borrowing figures in January are also likely to be significantly different from December as many people file self-assessment tax returns, which boosts government revenue.