Mind the Gap: UK Borrowing Overshoots Predictions, Sparking Fiscal Fireworks

Recent statistics published today have revealed that the United Kingdom government's borrowing in the 2024/25 financial year is significantly above official expectations. In the year to March 2025, public sector net borrowing totaled £151.9 billion, which is £14.6 billion higher than the Office for Budget Responsibility (OBR) forecast of £137.3 billion last month. This represents an increase in borrowing of £20.7 billion versus the previous year and constitutes the third highest borrowing figure in cash terms annually since these records began. 

 

The Office for National Statistics (ONS) reported that borrowing in March alone rose to £16.4 billion, which is the third highest March borrowing since monthly records began in 1993. The provisional numbers indicate that public sector net debt is 95.8% of GDP for the first time since the early 1960s. 

 

The ONS cited that the higher than expected borrowing is primarily due to lower tax receipts, greater expenditures by local authorities and central government, and the impacts of inflation on public sector pay and benefits. They also mentioned that the current budget deficit for the year was £74.6 billion which was £12.6 billion higher than last year while public sector net investment increased by £8.2 billion to £77.3 billion. 

 

These numbers increase the strain on the government's fiscal policy as the budget deficit stands at 5.3% of the United Kingdom's economic output, which is above the OBR's previous estimate of 4.8%. The Institute of Fiscal Studies warned that the government has little leeway before breaching its own fiscal rules noting that stagnant economic growth, high debt interest spending, and continuing inflation pose a serious challenge.

 

Source: Office for National Statistics, Reuters, Sky News