UK government borrowing has surpassed expectations in February, reaching £10.7bn—well above the predicted £6.5bn, according to official figures. This unexpected rise in borrowing comes just days before Chancellor Rachel Reeves is set to deliver her Spring Statement, where fiscal policies will be unveiled to address the UK’s growing financial challenges.
The increase in borrowing puts additional pressure on the Chancellor to navigate the delicate balance of meeting her fiscal targets while addressing the public’s growing concerns over the state of the economy. With such borrowing figures, economists and analysts are now questioning whether the government can meet its self-imposed fiscal rules.
Borrowing Rules at Risk of Being Missed
The rise in February’s borrowing figures raises concerns over the government’s ability to adhere to its fiscal rules.
Reeves has two primary objectives: not to borrow to cover day-to-day public spending and to ensure that national debt falls as a proportion of the country’s economic output by 2029/30. However, as highlighted by economists, these rules could be jeopardised given the current financial situation.
Dennis Tatarkov, Senior Economist at KPMG, noted that these unexpected figures increase the likelihood that the Chancellor could miss her target for borrowing, which could undermine the government’s credibility with investors and the public.
The borrowing spike puts the Treasury in a difficult position as it faces growing pressure to rein in public spending while still meeting its commitments to public services and welfare.
Government Response: Spending Cuts and Welfare Reforms
In response to the rising borrowing figures, the government is expected to implement further spending cuts in the upcoming Spring Statement. These cuts are expected to target welfare programs and reduce the overall spending bill, which has been steadily increasing due to the UK’s growing welfare burden.
Among the proposed changes, stricter eligibility tests for Personal Independence Payments (PIP) and a freeze on incapacity benefits have been confirmed. These measures aim to save up to £5bn annually.
Chancellor Reeves has also reaffirmed her commitment to increasing defense spending, though the government has indicated that funds will be reallocated from the international aid budget. This shift in priorities reflects the government’s ongoing efforts to balance fiscal restraint with national security needs.
Despite the higher-than-expected borrowing figures, experts agree that the Chancellor’s upcoming Spring Statement will likely focus on further cuts to non-defense spending. As the fiscal landscape grows tighter, it remains to be seen how Reeves will balance the need for austerity with maintaining essential public services.
