Rise in UK borrowing narrows budget options for gov’t

LONDON

U.K. government borrowing jumped by far more than expected in July, official figures showed on Wednesday, stoking fresh anxiety for the new Labour government ahead of its first budget in just over two months.

Finance Minister Rachel Reeves has already warned of "difficult decisions" over whether to cut spending or hike taxes on Oct. 30, and the latest numbers will do little to ease those concerns.

Public sector net borrowing reached 3.1 billion pounds ($4 billion) last month, the highest July figure since 2021 and well above expectations, the Office for National Statistics (ONS) said.

The finances suffered from "a rise in central government spending" as "the cost of public services and benefits continued to rise," said Jessica Barnaby, the ONS deputy director for public sector finances.

Since early April, the start of the U.K. tax year, the country has borrowed almost 5 billion pounds more than projected by the Office for Budget Responsibility (OBR) watchdog.

Public debt, which has neared 100 percent of gross domestic product (GDP) for several months, primarily due to support dating back to the pandemic and energy crisis, stood at 99.4 percent of GDP in late July.

Chief Secretary to the Treasury Darren Jones said the figures were "yet more proof of the dire inheritance left to us by the previous government.”

"We are taking the tough decisions that are needed to fix the foundations of our economy, modernize our public services and rebuild Britain," he added.

Dennis Tatarkov, senior economist at KPMG UK, said the higher borrowing "leaves little headroom" ahead of the budget.

"An expected slowing in GDP growth ahead could limit revenues in the second half of the year," he cautioned.