The British government borrowed 7.2 billion pounds more than the target, causing the deficit to surge to 9.98 billion pounds.

The British government borrowed £7.2 billion more than its target, sending the deficit to £9.98 billion. Economists warn the fragile fiscal position could force the finance minister to announce new tax increases.

October 21, 2568 at 14.26:XNUMX p.m. Bloomberg News reported that The British government borrowed £7.2 billion more than expected, or about $9.6 billion. The first half of the fiscal year reflects the challenge facing Treasury Secretary Rachel Reeves in restoring fiscal stability ahead of the unveiling of her new budget on November 26.

The UK's Office for National Statistics (ONS) has revealed that the total budget deficit has hit £9.98 billion, exceeding the Office for Budget Responsibility's (OBR) original estimate of £9.26 billion in March. In September alone, the government borrowed £2.02 billion more, the highest September since the start of the COVID-19 pandemic and the second-highest in history, mainly due to rapidly rising interest expenses.

While September's figures were within forecast limits, the overall half-year budget reflects a fragile fiscal position ahead of the fall budget proposal, which is expected to include a new round of tax hikes to narrow the budget gap.

Martin Beck, Chief Economist at WPI Strategy said "If current trends continue, the 2568-2569 fiscal year's borrowing could exceed the OBR's projections by around £1 billion, pushing the deficit to nearly 5% of GDP. This is significant for an economy nearing full employment and long past the impacts of COVID and the energy crisis."

The weakening fiscal position is also adding to the pressure on Reeves, with rising borrowing costs, a reversal on welfare cuts and a projected decline in labour productivity from the OBR's assessment meaning she may need to raise as much as £3.5 billion to restore the £9.9 billion budget buffer to her fiscal discipline framework.

In terms of the Current Budget Deficit, which measures the balance between current revenue and expenditure, the government exceeded the OBR's borrowing target by £1.3 billion, with the half-year deficit reaching £7.18 billion.

The Institute for Fiscal Studies (IFS) has warned that the larger-than-expected deficit could impact the OBR's longer-term forecasts. Nick Ridpath, IFS economist specify that “While high inflation typically increases tax revenue, in this case the fiscal impact has not yet been realized.” ready to add that "If this trend continues and the economy grows lower than expected, it could complicate the finance minister's fiscal challenge in November."

September's borrowing figures will be the final data used to prepare the OBR's new estimates before the Budget, with the next round of data released just five days before the Budget.

Despite an earlier adjustment to VAT data, which helped the government raise £2 billion in revenue, borrowing remained above both target and the previous year's level. The ONS said the adjustment was due to an error in VAT data submitted by HMRC, which resulted in a £4.2 billion improvement in the overall figure.

For September, the £2.02 billion borrowing total was close to the OBR's estimate, while the average economist polled by Bloomberg had expected £2.08 billion.

The main reason for the surging deficit was a 66% surge in debt interest expenses to £9.7 billion, as the Retail Price Index (RPI) surged in July, pushing up the cost of servicing inflation-linked bonds, which account for around a quarter of all government debt, to a record September interest burden.

Since the start of the year, the government has paid £5.95 billion in interest on its debt, up £1.44 billion from the same period in 2567, while inflation has also pushed up welfare spending, public sector wages and government procurement.

Government tax revenue fell 1.3 billion pounds short of target in the first half of the year, and borrowing by local governments and state-owned enterprises was also higher than expected.

refer : www.bloomberg.com

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