Government borrowing in March dwarfs expectations
Government borrowing overshot expectations as it hit £16.4bn in March, official data has revealed.
Ballooning levels of borrowing will likely come as a blow to Chancellor Rachel Reeves, who is under pressure to keep public finances in balance.
Reeves left herself £9.9bn at last month’s Spring Statement as she made around £14bn of cuts, mainly in welfare, in order to meet her strict fiscal rules that would see the public current budget to be in balance by 2030.
The Office for National Statistics (ONS) said borrowing in March was the third-highest since monthly records began more than 30 years ago, reflecting the UK’s ongoing tussle with high gilt yields.
The ONS also stated that its provisional figure for borrowing in the financial year to March 2025 was approximately £14.6bn more than the Office for Budget Responsibility (OBR) had projected.
Grant Fitzner, chief economist at the ONS, said: “Our initial estimates suggest public sector borrowing rose almost £21 billion in the financial year just ended as, despite a substantial boost in income, expenditure rose by more, largely due to inflation-related costs, including higher pay and benefit increases.”
Treasury minister Darren Jones said the government was looking carefully through “every penny of taxpayer money spent” in a bid to “tear out waste”.
“We are laser-focused on making sure taxpayer money is delivering our plan for change missions to put more money in people’s pockets, rebuild the NHS and strengthen our borders,” he said.
Borrowing in April could yet rise further after President Donald Trump’s tariffs spooked markets and pushed gilt yields further.
The Chancellor’s small headroom is also at risk of getting wiped out by the autumn due to low growth.
The International Monetary Fund (IMF) was the latest forecaster to slash its UK growth predictions as it blamed “domestic pressures” for expected poor performances in the economy.
Its prediction that the UK economy will grow 1.1 per cent is more optimistic than most other forecasters.
An average of forecasts made by City analysts concluded that the UK economy was forecast to grow 0.8 per cent whereas the Bank of England said the economy would grow just 0.75 per cent. It made its prediction before Trump’s all-out trade war with China broke out and will likely revise figures at next month’s interest rates decision.
The government is expected to announce a raft of public spending cuts at its Spending Review due in June.
But economists at the investment bank Jefferies and at the Institute for Fiscal Studies (IFS) believe Reeves will have to raise taxes at the Autumn Budget if she wishes to stick by her fiscal rules.
“March’s public finances figures showed that public borrowing was overshooting the OBR’s forecast even before the influence from the tariff chaos is felt,” Capital Economics’ Ruth Gregory said.
“This raises the chances that if the Chancellor wishes to stick to her fiscal rules, more tax hikes in the Autumn Budget will be required.”