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Government borrowing rose more than expected in December to its highest monthly level in four years, adding to the pressure on the UK's finances.
The deficit – the difference between spending and tax revenue – reached £17.8bn last month, £10.1bn more than in December 2023, official figures show.
Spending on public services, welfare benefits and debt interest rose during the year, while a rise in tax revenue was offset by cuts to National Insurance made by the previous government.
The recent rise in borrowing costs threatens the government's economic plans, with Chancellor Rachel Reeves facing pressure after figures last week showed the UK economy had stagnated.
The government has said economic growth is its top priority to improve living standards, but fears about the health of the UK economy are fuelling speculation that Reeves could cut spending on public services. The total amount borrowed by the government last month, £17.8 billion, is much higher than the £14.6 billion forecast by the Office for Budget Responsibility, the UK's official forecast.
Interest on government debt reached £8.3 billion, the third highest level of interest payments on the debt in December since monthly records began in 1997.
Earlier this month, interest rates charged on government debt jumped partly on concerns about the UK's economic outlook, before falling again.
On Wednesday, the interest rate charged on 10-year UK government debt fell to 4.5%, close to where it was at the start of the year.
During his visit to the World Economic Forum in Davos, Switzerland, Reeves downplayed the impact that the recent market turmoil would have on compliance with its self-imposed lending rules, which are designed to maintain its credibility with financial markets and taxpayers. The Chancellor has been on a trip to attract investment in the UK from the world's leading business and financial leaders.
But Alex Kerr, a British economist at Capital Economics, said that against a backdrop of sluggish economic growth and high interest rates, "the borrowing overshoot in December is disappointing news for the Chancellor."
He added that while borrowing costs in the UK have fallen, they remain higher than at the time of the budget.
Kerr said the weak economic growth suggested Reeves "may need to raise rates and/or cut spending" in March to meet his rules.
Elliott Jordan-Doak, senior economist at Pantheon Macroeconomics, also said the chancellor will outline spending cuts in March, adding that "tax increases in the upcoming October budget are also a gamble." Reeves has already said that she will not return "with more loans or more taxes" after her first budget in October.
Businesses are set to bear the brunt of the tax hike that comes into effect in April, along with rising National Insurance rates and a cut in the threshold for employers.
Businesses have repeatedly warned that the extra costs, along with minimum wage rises and business tax cuts, could hit UK economic growth, with employers expecting to earn less money to provide wage increases and to create new jobs.
On Wednesday, the chancellor suggested she would support the expansion of Heathrow airport to boost the economy, despite environmental concerns.
The Treasury is looking to support a third runway at Heathrow by approving a second runway at Gatwick, but such projects will not start for some time. In addition, Reeves said regulators need to "regulate for growth" after the head of the UK's competition watchdog was ousted by government ministers on Tuesday.
Reeves said Marcus Bokkerink, who has led the Competition and Markets Authority since 2022, "realised it was time for a reset".
Government sources said Mr Bokkerink's departure followed a disappointing presentation by the CMA on ideas on how to stimulate economic growth.
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Bar chart showing UK public sector net borrowing, excluding public sector banks, from December 2020 to December 2024. In December 2020, public sector net borrowing was £24.2 billion , post-Covid. The amount borrowed then fell to £10.0 billion in December 2021, before rising again to £15.1 billion in December 2022. It fell again to £7.7 billion in December 2023, before rising again to £10.0 billion in December 2024. ... rising to £17.8 billion in December 2024, the highest monthly figure for four years. Darren Jones, the Chief Secretary to the Treasury, said the government's borrowing rules were "non-negotiable" to maintain economic stability and growth.
He added that the government would "eliminate waste to ensure every penny of taxpayers' money is spent productively".
The amount borrowed was the third highest for a December since monthly records began in 1993. It involves a one-off payment of £1.7bn from the government to the private sector to buy military housing.
The increase in borrowing means that, with most of the financial year now over, the difference between what the government has spent and what it earns in tax is £4bn higher than official forecasts.
However, this figure includes many estimates which are often revised later.
The January borrowing figure could also be significantly different from December's due to the large number of people filing self-assessed tax returns, increasing government revenue.
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