Headlines
Budget challenge for Reeves gets even bigger as borrowing surges
Published by Global Banking and Finance Review
Posted on September 19, 2025
3 min readLast updated: January 21, 2026
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on September 19, 2025
3 min readLast updated: January 21, 2026
UK's borrowing surpasses forecasts, challenging Rachel Reeves' budget strategy. Tax increases may be necessary to meet fiscal rules.
By William Schomberg
LONDON (Reuters) - Britain's borrowing has shot past the official forecasts that underpin the government's tax and spending plans, compounding the challenge facing finance minister Rachel Reeves in her November budget.
Public sector borrowing between April and August totalled 83.8 billion pounds ($113.39 billion), 11.4 billion pounds more than projected by the Office for Budget Responsibility, official data published on Friday showed.
The borrowing was the highest for the first five months of a financial year since 2020 when the coronavirus pandemic forced the government into huge spending to prop up the economy.
Even before Friday's figures, Reeves had been expected to announce fresh tax increases in her budget on November 26 to stay on track to meet her fiscal rules and avoid fresh upheaval in financial markets.
Higher taxes are likely to slow Britain's already stumbling economic growth, which Reeves and Prime Minister Keir Starmer have promised they will speed up.
Nabil Taleb, a PwC UK economist, said the government faced a combination of higher debt costs and inflation, opposition to spending cuts and the risk of an OBR downgrade to its growth forecasts, which would make Reeves' rules harder to meet.
"The chancellor faces tough choices, and the test will be whether she can make them palatable to voters and markets," Taleb said.
Sterling fell by almost half a cent against the U.S. dollar after the ONS released the borrowing figures along with separate data that showed a stronger-than-expected increase in retail sales volumes in August.
In August alone, the government borrowed almost 18 billion pounds, the Office for National Statistics said, much higher than the OBR estimate of a 12.5 billion-pound overshoot.
A Reuters poll of economists showed a median forecast of a 12.75 billion-pound deficit in August.
"Last month’s borrowing was the highest August total since the pandemic," ONS chief economist Grant Fitzner said.
"Although overall tax and National Insurance receipts were noticeably up on last year, these increases were outstripped by higher spending on public services, benefits and debt interest."
The ONS said its estimates for borrowing in recent months had been revised higher by almost 6 billion pounds after updated data from the tax office showed value-added tax receipts were lower than initially thought.
Updated figures from local and devolved administrations also contributed to the revision.
Prior to Friday's data release, public sector borrowing had been tracking close to the OBR's forecast for the year to date.
Paul Dales, chief UK economist at Capital Economics, said Reeves would probably have to announce fiscal measures, mostly tax increases, worth 28 billion pounds in her budget, approaching the 40 billion pounds of tax hikes in her first budget last year and which she has vowed not to repeat.
Earlier on Friday, the Institute for Fiscal Studies think tank said Reeves risked "a major fiscal issue" if she misses her ambitious plans to make public services more efficient, highlighting another risk to her ability to meet her targets.
(Writing by William Schomberg; Editing by William James, Sarah Young, Peter Graff)
Economic growth is the increase in the production of goods and services in an economy over a period, typically measured by the rise in Gross Domestic Product (GDP).
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