UK borrowing rises to £17.7bn, adding to pressure on Rachel Reeves

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"UK Public Sector Borrowing Increases to £17.7 Billion in May"

UK borrowing rises to £17.7bn, adding to pressure on Rachel Reeves analysis cover image The Guardian 7.9
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Original Article Source: https://www.theguardian.com/business/2025/jun/20/uk-borrowing-rises-adding-to-pressure-on-rachel-reeves
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In May, the UK public sector borrowing rose to £17.7 billion, a slight increase from £17 billion in the same month last year, marking the second highest level recorded for May. This rise in borrowing occurred despite higher tax receipts, indicating that the government's efforts to manage the annual deficit are facing significant challenges. A poll of economists had predicted a lower borrowing figure of £17.1 billion, highlighting the unexpected nature of the increase. The situation raises concerns regarding the government's ability to adhere to strict spending rules, which are vital for maintaining fiscal responsibility. Chancellor Rachel Reeves has emphasized the need to keep day-to-day government budgets within strict limits, even as she introduced new taxes on businesses, including an increase in national insurance contributions implemented in April. These measures aim to generate additional revenue to help mitigate the growing deficit.

Despite the increased borrowing, the current budget deficit remained below the Office for Budget Responsibility's (OBR) forecast, which anticipated a deficit of £13 billion for May, while the actual figure was recorded at £12.8 billion. This marked the second consecutive month where the deficit was lower than the OBR's predictions. However, backbench Labour MPs are reportedly poised to rebel against proposed cuts to welfare benefits, which amount to over £5 billion. Major economic institutions, including the International Monetary Fund and the Bank of England, have downgraded the UK's growth outlook, which may further impact tax revenues and necessitate either additional spending cuts or tax increases to address the fiscal gap. Although the OBR had projected a decrease in borrowing from £152 billion in 2024-25 to £117.7 billion in the following financial year, recent trends suggest that maintaining this trajectory may prove challenging, particularly following an unexpected spike in borrowing recorded in April, which was the fourth largest on record, exceeding predictions and historical figures from previous years.

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Source URL: https://www.theguardian.com/business/2025/jun/20/uk-borrowing-rises-adding-to-pressure-on-rachel-reeves

Higher tax receipts were unable to prevent a rise in public sector borrowing in May to £17.7bn, up from £17bn a year earlier and the second highest for the month on record.

A poll of City economists had forecast public sector net borrowing – the difference between public spending and income – would be £17.1bn.

The figures will add to the concerns that the government is struggling to bring down the annual deficit to keep within strict spending rules.

While last October’s budget allowed for more than £100bn of extra investment spending, the chancellor,Rachel Reeves, said day-to-day Whitehall budgets must remain within strict limits.

However, the measure of shortfall in day-to-day spending – the current budget deficit – remained below the forecast by theOffice for Budget Responsibility(OBR), which provides independent forecasts of the public finances.

Reeves has introduced extra taxes on businesses – including a rise in national insurance contributions – which wereimplemented in April.

The OBR said it expected the current deficit to be £13bn in May, but it was £12.8bn, marking the second consecutive month when the deficit fell under the OBR prediction.

Backbench Labour MPs areexpected to rebelagainst cuts to benefits worth more than £5bn in the welfare bill introduced to parliament on Wednesday.

Most major economic forecasters, including the International Monetary Fund and the Bank of England have downgraded the UK’s growth prospects this year, potentially reducing tax receipts over the longer term and forcing the chancellor to make further spending cuts or raise taxes to bridge the gap.

In March, the OBR said it expected borrowing to fall from £152bn in 2024-25 to £117.7bn in the 2025-26 financial year.

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However, the following month’s deficitcame in at £20.2bn, which was £1bn more than the same month a year earlier and higher than the £17.9bn economists predicted.

April’s borrowing was the fourth biggest on record, surpassing only deficits in April 2020 and 2021 during the height of the Covid pandemic, and in April 2012 linked to costs related to the privatisation of Royal Mail.

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Source: The Guardian