UK Borrowing Drops to 3-Year Low, Boosting Chancellor Reeves
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UK Borrowing Drops to 3-Year Low, Boosting Chancellor Reeves

In a much-needed boost for Chancellor Rachel Reeves, UK government borrowing fell to its lowest November level in three years last month. Figures from the Office for National Statistics showed public sector net borrowing dropped to £11.2bn in November 2024, well below economists’ expectations of £13bn.

The decrease in borrowing was driven by lower interest payable on government debt, which fell by £4.7bn compared to November 2023, to £3bn. This marks the lowest debt interest bill for November since 2019. At the same time, tax receipts were bolstered by higher income tax revenue thanks to recent wage growth and frozen personal tax thresholds.

A Welcome Gift Amid Budget Backlash

The borrowing figures provide some relief for Reeves following a furious reaction from business leaders to her debut budget in October. The budget included controversial measures such as a £25bn hike in employer national insurance contributions, drawing strong criticism from the business community.

However, while the lower borrowing and higher tax receipts paint a rosier fiscal picture in the near-term, concerns remain about the UK’s economic outlook. Growth is expected to slow to zero by year-end, while inflation continues to rise and interest rates remain elevated. The Bank of England held rates at 4.75% on Thursday but warned of a weakening economy heading into 2025.

Pressure Remains Despite Near-Term Positives

Ruth Gregory, deputy chief UK economist at Capital Economics, said that while “Christmas has come early for the chancellor”, the combination of a slowing economy and potential further interest rate hikes mean Reeves could still struggle to reduce the deficit as rapidly as planned. Without robust economic growth to drive tax revenue higher, the government may be forced to consider additional belt-tightening measures in the coming year.

What will worry government is that recent economic indicators such as weak GDP growth and rising inflation are flashing amber, and what this could mean for tax receipts and the cost of servicing government debt in 2025. Money remains extremely tight and that is unlikely to change any time soon.

– Alison Ring, Institute of Chartered Accountants in England and Wales

Revisions to earlier months’ data by the ONS added £6.3bn to the borrowing total, suggesting the overall debt burden as a percentage of GDP will increase from 83.7% in October to 84.6% under the chancellor’s new ‘net financial liabilities’ measure introduced at the budget. This new metric aims to provide a more comprehensive view of public finances.

Tough Choices on Tax and Spend Still to Come

So while the November borrowing data provides some positive news in the face of a difficult budget, the road ahead remains bumpy for Reeves and the UK economy. Weak growth, high inflation, and the prospect of further interest rate rises all threaten to derail deficit reduction plans in the medium-term.

As such, economists suggest additional revenue-raising measures or spending cuts may be required in 2025 if the chancellor is to meet her fiscal targets. Having already faced pushback on tax hikes, any further tightening could prove politically challenging.

  • Short-term borrowing boost welcome relief for chancellor
  • But slowing economy and rate hike risks cloud medium-term outlook

The months ahead will be pivotal, as Reeves balances the competing priorities of supporting growth, managing inflation, and repairing public finances against a backdrop of economic headwinds and market scrutiny. While the dip in November borrowing provides some much-needed breathing room, the chancellor’s room for maneuver remains constrained.