UK Borrowing Falls Short in November but Reeves Faces Fiscal Tightrope

The UK government reported a smaller-than-expected budget deficit in November, offering a brief respite for Finance Minister Rachel Reeves, who faces mounting challenges to balance public finances amid a slowing economy and rising inflation.

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Key November Borrowing Figures

• Public Sector Net Borrowing:
  • £11.249 billion, lower than the £13 billion forecast by economists polled by Reuters.
  • A £1.8 billion reduction in inflation-linked debt compensation due to a 0.3% fall in the retail price index(RPI) in September helped narrow the deficit.

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Year-to-Date Borrowing

• April–November 2024/25 Financial Year:
  • Borrowing totaled £113.2 billion, similar to the same period in 2023/24.
  • Despite November’s improved figures, borrowing has exceeded expectations in eight out of 11 months in 2024.

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Challenges Ahead for Reeves

1. Fiscal Rules Under Strain:

   • Reeves pledged to balance day-to-day spending with tax revenues by the end of the decade.
   • Plans include significant borrowing for public services and infrastructure investment, diverging from previous Conservative policies.

2. Economic Headwinds:

   • Zero GDP Growth: The Bank of England predicts stagnation for Q4 2024.
   • Rising Inflation: Recent upticks could drive higher borrowing costs.
   • Alison Ring of ICAEW warns that "money remains extremely tight and that is unlikely to change any time soon."

3. Tax Increases:

   • Reeves’ budget announced the largest tax hikes in three decades, primarily through higher employer social security contributions, to stabilize public finances.

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Revised October Borrowing Data

• October’s borrowing was adjusted upward by £800 million, highlighting ongoing volatility in fiscal metrics.