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Government borrowing jumped to 17.8 billion pounds in December, the highest level in four years and 3.2 billion pounds more than expected.
The deficit was the highest of any December since 2020, the height of the pandemic, when the government was forced to prop up shuttered businesses and spend billions of pounds on medical equipment due to Covid lockdowns.
Why did it go up?
A pay rise for public sector workers helped boost government spending, as did poor economic growth, resulting in lower tax collections for the Treasury.
The government also purchased 36,000 military homes, costing £1.7bn during the month.
Overall public spending has risen by £12.9bn in the last year, while one of Rachel Reeves's main revenue-raising plans – to raise the rate and lower employers' national insurance threshold – does not start until April.
Is it a problem for Rachel Reeves?
Analysts suggested the rise in borrowing was no more worrying than the other challenges facing the chancellor.
The UK economy will grow by 1.6 per cent, the fastest of Europe's largest economies and the third fastest in the G7, after Canada and the United States, according to the International Monetary Fund. But that comes after a period of very low growth and productivity.
Government bond prices remained roughly the same, suggesting traders were not worried about the sudden rise in borrowing. But yields are still not far from the highs seen a few weeks ago, when dismal growth numbers and stubborn inflation worried economists.
“The bond market has not panicked at the fact that UK government borrowing has soared to £17.8bn,” says Russ Mould, investment director at AJ Bell.
“While the public sector net borrowing figure was much higher than the consensus estimate of £14.1bn, the UK 10-year bond yield was unchanged at 4.594 per cent, implying that the bond market is already had discounted a sharp increase in debt.
“We've already seen big moves in bond yields in recent weeks, but that doesn't mean Rachel Reeves now has nothing to worry about. “The pressure is on the chancellor to put public finances in order and accelerate economic activity.”
What is your answer?
Mrs Reeves, who announced a £40bn tax rise in her first Budget, told reporters she would like to reduce the overall burden but could not yet afford to do so and “I'm not going to make promises that can.” “I don’t save.”
At a Bloomberg event in Davos, Switzerland, where the World Economic Forum has attracted business leaders from around the world, he said he had a plan to grow the economy.
She said: “We are reforming the planning system, we are reforming our regulatory system, reforming pensions, and also this year we are going to publish a white paper on immigration, and although we know that we need to reduce immigration. “In particular, illegal immigration to “United Kingdom, we will look again at the routes for more qualified people, visas, especially in areas such as artificial intelligence and life sciences, because Britain is open for business.”
