Published by Global Banking & Finance Review®
Posted on January 22, 2025
3 min readLast updated: January 27, 2026
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UK's budget deficit surged in December due to debt interest costs and military home purchases, posing challenges for finance minister Rachel Reeves.
By Andy Bruce and William Schomberg
(Reuters) - Britain ran a bigger-than-expected budget deficit in December, swelled by debt interest costs and a one-off purchase of military homes, according to official data that underlined the fiscal pressure faced by finance minister Rachel Reeves.
Public sector net borrowing was 17.8 billion pounds ($22 billion) in December, more than 10 billion pounds higher than a year earlier, the Office for National Statistics said on Wednesday.
Economists polled by Reuters had a median forecast of 14.1 billion pounds for headline public sector net borrowing.
Since the Oct. 30 budget that raised borrowing and increased tax on employers to help restore public services and investment, economic and financial data has largely turned against Reeves, adding to the likelihood that she will need to do more to meet the government's self-imposed fiscal rules.
Reeves, speaking with Bloomberg on the sidelines of the World Economic Forum's annual meeting in Davos, Switzerland, said Britain's public finances were now in order but she would continue to take decisions to meet the fiscal rules.
Earlier this month, a sharp sell-off in British government bonds, driven to a large degree by shifts in U.S. interest rate expectations, forced Reeves to say she would act to meet the government's fiscal rules.
These include balancing day-to-day spending with revenues by the end of the decade and for public sector net financial liabilities to decline as a proportion of gross domestic product.
However, market borrowing costs have fallen in the last week and as of Tuesday, British gilts were the third best-performing bonds among the Group of Seven countries this year.
Cara Pacitti, senior economist at the Resolution Foundation think tank, said a recent slowdown in the economy had yet to show in the data, with tax receipts still growing strongly.
"However, with tax returns due at the end of this month, and market jitters adding further uncertainty around UK debt servicing costs, there is still plenty for the Chancellor to worry about ahead," Pacitti said.
The government's cash deficit - an important indicator for the gilt market - was currently on track to meet budget forecasts, she added.
Reeves said on Wednesday that economic growth was her top priority and that Britain had forced out the head of its antitrust regulator because he had not focused on that.
The ONS said the government racked up an 8.3 billion-pound debt interest bill in December, the third-highest December total on record. A 1.7 billion-pound payment for the repurchase of military dwellings added to borrowing.
Britain's government has borrowed 129.9 billion pounds over the first nine months of the 2024/25 financial year, the ONS said - more than the Office for Budget Responsibility's forecast for 125.9 billion pounds at this point of the year.
Public sector net financial liabilities rose to 84.5% of GDP in December from 84.0% in November.
($1 = 0.8118 pounds)
(Reporting by Andy Bruce; Editing by William Schomberg, Tomasz Janowski and Hugh Lawson)
Public sector net borrowing was 17.8 billion pounds in December, which is more than 10 billion pounds higher than a year earlier.
The budget deficit was swelled by debt interest costs and a one-off purchase of military homes, according to official data.
The government's cash deficit is currently on track to meet budget forecasts, as indicated by economic analysts.
Despite a recent slowdown in the economy, tax receipts have continued to grow strongly, according to economists.
The government aims for public sector net financial liabilities to decline as a proportion of gross domestic product by the end of the decade.
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