Financial News: UK Budget Deficit Surges On Interest Payments

UK Budget Deficit Surges On Interest Payments

01/22/2025 - 07:51:00 (RTTNews)

(RTTNews) - The UK budget deficit more than doubled in December largely due to interest payments, highlighting the challenges faced by Chancellor Rachel Reeves amid high borrowing costs and weaker economic growth.

Public sector net borrowing increased GBP 10.1 billion from the last year to GBP 17.8 billion in December, the Office for National Statistics said Wednesday.

This was the highest December borrowing for four years and also above the GBP 14.6 billion that was forecast by the Office for Budget Responsibility. Economists had forecast GBP 13.7 billion shortfall for December. At the same time, borrowing to fund day-to-day public sector activities rose by GBP 7.3 billion to GBP 10 billion, the highest deficit for December in two years.

Data showed that the interest payable on central government debt totaled GBP 8.3 billion in December. This was GBP 0.5 billion more than the GBP 7.8 billion forecast by the OBR.

Borrowing in the financial year to December was GBP 129.9 billion, which was GBP 8.9 billion more than at the same point in the last financial year, data showed.

Although most of the overshoot in borrowing was because of a one-off payment, the figures still leave the current budget deficit on track to overshoot the OBR forecast in 2024/25 by GBP 0.8 billion, Capital Economics economist Alex Kerr said.

Recently, the UK government bond yields surged as investors sought higher risk premium to buy UK assets. Investors were more concerned about inflation and fiscal strength.

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