UK govt increases borrowing as first budget nears

UK public borrowing rose more than expected in September, official data showed Tuesday, as the new Labour government prepares for its first budget next week which is expected to include tax rises.

Public sector borrowing stood at £16.6 billion ($21.5 billion) last month, up £2.1 billion from September 2023, the Office for National Statistics said in a statement.

It marked the third-highest September borrowing figure since records began, the ONS added.

The figure was £1.5 billion higher than the amount expected by the government watchdog the Office for Budget Responsibility.

However, it came in lower than the amount forecast by economists.

Prime Minister Keir Starmer has warned Britons that the budget announcement on October 30 will be "painful", with spending cuts also expected.

Government finances last month suffered from "increased spending, partly due to higher debt interest and public sector pay rises", said Jessica Barnaby, ONS deputy director for public sector finances.

Tuesday's data also showed total state debt at 98.5 percent of UK gross domestic product, remaining at levels last seen in the 1960s.

The ONS added that net social benefits decreased by £2 billion last month, partly owing to a controversial Labour policy to reduce spending on winter fuel payments for pensioners. 

 'Iron discipline'  

Finance minister Rachel Reeves has pledged to impose "iron discipline" over public finances to claw back what she says is a £22-billion black hole inherited from the previous Conservative government.

Labour won a landslide election in early July, ending 14 years of Tory rule.

"Resolving this black hole at the budget next week will require difficult decisions to fix the foundations of our economy," senior Treasury official Darren Jones said in a statement following Tuesday's data.

Labour has pledged not to hike taxes on "working people", which would appear to rule out raising income tax, other social security and VAT rates.

But there is growing speculation that other taxes, like capital gains, could be targeted.

"Although Rachel Reeves has promised that the UK will not see a return to austerity, a series of tax increases in one form or another are all but guaranteed at next week’s budget," said Lindsay James, a strategist at Quilter Investors.

 Stronger growth 

The government, however, has been boosted by some positive data over the past month.

The UK economy bounced back in August after two months of stagnation and inflation has fallen below the Bank of England's two-percent target.

These figures have added to analysts expectations that the BoE will cut its key interest rate in November, easing the burden on borrowers.

In its latest global update, the International Monetary Fund on Tuesday forecast that the UK economy would grow 1.1 percent this year, up from its previous forecast of 0.7 percent.

The IMF maintained its estimate for British growth next year at 1.5 percent.

While welcoming the update, Reeves insisted "there is more work to do".

She added in a statement: "The budget next week will be about fixing the foundations to deliver change."

Elsewhere Tuesday, the UK government announced a new loan of nearly £2.3 billion for Ukraine, allowing it to buy military equipment in its ongoing war with Russia.