UK budget pain persists with bigger-than-expected deficit in November

MANCHESTER, England, Dec 19: UK posted another big budget deficit in November and revised up borrowing so far this year, according to data that laid bare the challenge facing finance minister Rachel Reeves who announced tax rises last month to fix the public finances.

The Office for National Statistics said on Friday that public sector net borrowing last month totalled 11.7 billion pounds ($15.64 billion).

While that marked the smallest November deficit since 2021, it was higher than expected by a Reuters poll, which had forecast a shortfall of 10.0 billion pounds.

Reeves in her budget last month chose to raise taxes to build up a bigger buffer for meeting her fiscal rules.
But economists said her decision to delay most of those tax hikes until 2028 and 2029 looked risky in the light of the latest borrowing figures, raising the possibility of further nervousness in the bond market.

“Ms. Reeves has staked much fiscal credibility on chunky tax increases in the back end of the forecast period. But we think today’s figures further illustrate the shaky foundations of that gamble,” Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said.

“Revenues continue to underperform, and the smorgasbord approach of tax increases relies on distortionary tax increases with uncertain yields.”

The figures add to a pattern of the budget deficit surprising to the upside against economists’ forecasts so far this year – something that has happened in six out of the eight months of 2025/26 so far in the first estimate.

“Although the government used the budget as an opportunity to build up some fiscal headroom, fiscal concerns will likely remain a theme through 2026,” said Martin Swannell, chief economic adviser to the EY Item Club consultancy.

Borrowing in the first eight months of the financial year amounted to 132.2 billion pounds, a 10 billion-pound increase compared with the same point in 2024/25 and already close to the Office for Budget Responsibility’s forecast of 138.3 for the full year.

The current budget deficit – which measures day-to-day spending against revenue and must be in balance under the fiscal rules by 2029/30 – is running at 93 billion pounds, far above the OBR forecast of 52.4 billion pounds for the year.

“The government will have to successfully deliver a significant slowdown in borrowing over the next few months if it is to meet the OBR’s borrowing forecast,” Swannell said.

Borrowing for October alone was revised up to 21.2 billion pounds from an initial estimate of 17.4 billion pounds.
For the first seven months of 2025/26, the ONS revised up borrowing by 3.9 billion pounds – reflecting a downward revision to corporation tax receipts and an additional winter fuel payment. These were offset by local government spending that was lower than previously reported.

Interest payable on British government debt fell to 3.4 billion pounds in November, its lowest since March 2024, caused by a drop in the retail price index benchmark for inflation-linked bonds between August and September.

On Thursday the Bank of England cut interest rates – a key determinant of the cost of issuing public debt – to a nearly three-year low of 3.75%, although it said the pace of reductions could slow.