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UK borrowing exceeds forecasts ahead of Chancellor's Budget
Public sector borrowing in the UK reached £17.4 billion in October, surpassing analyst expectations of £15 billion, according to the Office for National Statistics (ONS). The figures, released just days before Chancellor Rachel Reeves presents her Budget on 26 November, underscore fiscal pressures as she considers tax increases and spending cuts.
Borrowing trends and economic context
While October's borrowing was £1.8 billion lower than the same month last year, it marked the third-highest October figure since records began in 1993. For the financial year to date (April-October), borrowing totaled £116.8 billion-£9 billion higher than the same period in 2024 and the second-highest on record, trailing only 2020.
Grant Fitzner, ONS chief economist, attributed the year-on-year decline in borrowing to rising tax and National Insurance receipts, which offset increased spending on public services and benefits. However, economists warn the data reflects broader economic challenges.
"Today's data is not helpful... but it doesn't necessarily change the decisions next week."
James Smith, economist at ING
Fiscal rules and Budget constraints
Reeves faces a £20 billion shortfall in public finances, per updated Office for Budget Responsibility (OBR) assessments, to meet her "non-negotiable" fiscal rules. These require debt to fall by the fifth year of forecasts and day-to-day spending (excluding investment) to be fully funded by revenue.
Nick Ridpath of the Institute for Fiscal Studies noted that while borrowing exceeds OBR forecasts by roughly £10 billion, the figures highlight uncertainty around spending pressures and debt servicing costs. "Operating with minimal fiscal margin for error is risky," he cautioned, suggesting Reeves may seek to bolster her "fiscal headroom" in the Budget.
Retail sales decline amid consumer caution
Separate ONS data revealed a 1.1% drop in retail sales in October-the first monthly decline since May. Supermarkets, clothing stores, and online retailers reported slower activity, with some attributing the dip to consumers delaying purchases for Black Friday deals.
Ruth Gregory of Capital Economics described the combined borrowing and retail figures as a "pretty grim picture," though she noted the sales decline followed four months of growth. "Consumer confidence has weakened," she added, signaling subdued household sentiment.
Political reactions
Chief Secretary to the Treasury James Murray emphasized the government's goal to reduce borrowing over the parliament, citing high debt interest costs-currently consuming 10p of every £1 in tax revenue. "That money should be going to schools, hospitals, and public services," he stated.
Shadow Chancellor Sir Mel Stride criticized Labour's approach, calling the borrowing levels "the highest on record outside the pandemic" and urging spending controls to avoid tax hikes. Reeves' Budget will test her ability to balance fiscal discipline with economic growth amid persistent inflationary and debt pressures.
