The UK government’s borrowing figures for December have come in lower than expected, providing some relief on public finances that have been under pressure. According to the Office for National Statistics, public sector net borrowing – the difference between spending and income – stood at £11.6 billion last month, down from £18.7 billion in the same period a year earlier.
The December numbers were better than the £13 billion that economists had forecast, signalling stronger tax receipts compared to a year ago even as government spending increased only modestly. Borrowing for the financial year so far has reached £140.4 billion, down £300 million from the same period last year.
Chancellor Rachel Reeves has made reducing government borrowing a key priority, especially given that interest costs now account for £1 in every £10 spent by the Treasury. The ONS data showed that interest costs made up £9.1 billion of the £11.6 billion in net borrowing last month.
However, there are signs that these interest burdens could start to ease in the coming months. With interest rate cuts expected later this year and the winding down of the Bank of England’s quantitative tightening programme, the Treasury could see a “marked decline in borrowing costs”, according to KPMG economist Dennis Tatarkov.
This potential relief on debt servicing costs comes as the government has implemented £26 billion in tax rises announced in the Autumn Budget. The Chancellor has a fiscal rule requiring day-to-day spending to be funded through taxes by the end of this parliamentary term.
The Office for Budget Responsibility has projected that public sector net borrowing will fall to £138 billion this financial year, down from £152.6 billion a year earlier. This would take the deficit down to 4.5% of gross domestic product, compared to 5.2% in 2024-25. Borrowing is then forecast to decline further in subsequent years, reaching £67 billion by 2031.
Chief Secretary to the Treasury James Murray said the government is “stabilising the economy, reducing borrowing, rooting out waste in the public sector and making sure that public services deliver value for taxpayers’ money.” With some fiscal headroom created, the focus will now turn to how this can be best utilised to address the UK’s economic challenges.
