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UK government borrowing sharply overshot expectations in February, according to official figures, underscoring the pressure on chancellor Rachel Reeves as she prepares for her Spring Statement next week.
The shortfall between government income and spending was £10.7bn last month, the Office for National Statistics said. This compared with a forecast of £6.5bn from the Office for Budget Responsibility, the government’s fiscal watchdog, and a similar projection in a Reuters survey of economists.
Reeves is preparing for a Spring Statement that will introduce a further squeeze on government spending as she attempts to keep the public finances on track. The chancellor has pledged, under her fiscal rules, to balance the current budget, which excludes investment, by 2029-30.
But the weak state of the economy and public finances mean forecasts from the OBR are expected to indicate that further spending restraint is required. The government has announced plans for welfare savings of £5bn a year, and is expected to unveil a fresh squeeze on departmental spending on Wednesday.
“Cost cutting can only go so far, and barring a surprise boost to UK growth this summer, we think further tax hikes look inevitable in the autumn,” said James Smith, an economist at ING. “Britain’s public finances are operating under increasingly fine margins.”
February’s overshoot in borrowing was driven both by softer-than-expected receipts and higher spending, leaving the government on track for a “hefty” overshoot in its current budget deficit in the current fiscal year, said Alex Kerr at Capital Economics.
The figures, he added, underline “just how difficult the choices [Reeves] faces over the next few years will be.”
In the financial year to February the deficit was £132.2bn, about £14bn more than at the same point in the previous fiscal year. That was well above the £111.8bn forecast by the OBR in October 2024.
The overshoot, said Mark Dowding, chief investment officer for fixed income at RBC Bluebay Asset Management, was unsurprising given “growth is weaker than the OBR forecast and borrowing costs higher”.
The OBR in October predicted GDP growth of 2 per cent for this year, but weak out-turns mean this will be cut back sharply next week. The Bank of England in February forecast growth of just 0.75 per cent in 2025.
The ratio of net government debt to GDP at the end of February was provisionally estimated at 95.5 per cent, according to the ONS release, 0.1 percentage points higher than a year ago.
Reeves exited her first Budget in October with headroom against her current deficit rule of £9.9bn, but that has been wiped away by rising government borrowing costs and flatlining growth.
Gilt investors have warned that the chancellor will need to rebuild that headroom to show she is keeping Britain’s public finances in order.
UK government bonds were steady in early trading, with the 10-year yield rising 0.02 percentage points to 4.67 per cent.
Reeves has insisted that next week’s announcement will not constitute a major fiscal event, with officials saying there will be no tax rises.
But pressures, including the need to increase defence spending and repair public services, suggest she could be forced into further revenue-raising measures this parliament, economists warn.
Darren Jones, chief secretary to the Treasury, said: “We’re refocusing the public sector on our missions and, for the first time in 17 years, going through every penny of taxpayer money line by line to make sure it is helping us secure Britain’s future through the Plan for Change.
“At the core of this urgent mission is sound public finances, based on our non-negotiable fiscal rules.”
Additional reporting by Ian Smith in London
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