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Britain borrowed more than anticipated in June, with public sector net borrowing reaching £20.7 billion ($27.9 billion). This figure, released on Tuesday, surpassed economists’ median forecast of £16.5 billion in a Reuters poll and marks the second-highest June borrowing on record. The borrowing also exceeded the £17.1 billion predicted by Britain’s budget watchdog in March. This increase is largely attributed to a surge in inflation, which has driven up payments on inflation-linked government bonds.
The Office for National Statistics (ONS) data revealed that the government’s debt interest bill hit £16.4 billion in June, the third highest since records began in 1997.
This adds pressure on Finance Minister Rachel Reeves, who is expected to announce further tax hikes later this year to meet her fiscal targets, following significant tax increases last year. Her task was complicated further this month when the government abandoned plans to reduce welfare spending due to internal opposition within the ruling Labour Party. Slow economic growth is also exacerbating her challenges.
Reeves has stated her aim to balance day-to-day spending with tax revenues by the end of the decade. The latest ONS data shows that the current budget deficit for the first three months of the financial year, starting in April, stands at £44.5 billion, which is £5 billion more than the Office for Budget Responsibility’s projection.
“There is no denying that fiscal developments have been very disappointing so far this financial year and Rachel Reeves will almost certainly be investigating potential revenue raising measures,” said Philip Shaw, chief UK economist at Investec.
Finance Minister Rachel Reeves will likely need to raise taxes by £20 billion, roughly half the size of last year’s package, according to Rob Wood, chief UK economist at Pantheon Macroeconomics. Future increases in defense spending could further inflate this figure.
Darren Jones, a deputy to Reeves at the Treasury, affirmed the government’s commitment to its fiscal rules.
Over the first three months of the fiscal year, which began in April, Britain borrowed £57.8 billion. This is 15% more than the same period last year and marks the third-highest April-to-June deficit on record. This figure is now in line with the year-to-date forecast by the Office for Budget Responsibility (OBR), whose projections underpin the government’s tax and spending plans.
The public finances have benefited from Reeves’ increase in social security payments from employers. Compulsory social contributions, primarily National Insurance Contributions, rose by 18% in the April-to-June period, totaling £48 billion.
