Official figures show UK government borrowing ran nearly £10bn higher than forecast in the year to October, in the final snapshot of the public finances before next week's budget. The Office for National Statistics (ONS) reported borrowing of £17.4bn in October, the third-highest October deficit on record, though lower than the same month last year.
Borrowing for the fiscal year to date stood at £116.8bn, £9.9bn more than the Office for Budget Responsibility (OBR) had expected at this point. Economists warned that the chancellor's headroom against her fiscal rules has all but disappeared. Martin Beck, chief economist at WPI Strategy, said total borrowing in 2025-26 could overshoot the OBR's full-year forecast by around £10bn, pushing the deficit close to 5% of GDP.
The bond markets are a key audience for the budget, and attention will focus on how much headroom Rachel Reeves has left herself. Russell Shor, senior market analyst at Tradu.com, noted that gilt yields saw their biggest jump since July last Friday after reports that income-tax rises had been dropped, making the budget a crucial test of fiscal discipline.
The ONS said central government spending was £3.7bn higher than a year ago, driven by rising benefits payments due to higher-than-expected inflation and pay increases for public servants. Debt interest payments reached £8.4bn in October, reflecting larger-than-expected payments on inflation-linked gilts. Chief Secretary to the Treasury James Murray said every £1 in every £10 of taxpayer money currently goes on national debt interest, money that should be spent on schools, hospitals, police and armed forces.
Reeves is expected to raise taxes significantly in Wednesday's budget, alongside cost-of-living measures such as freezing prescription charges for another year. Her fiscal rule aims to bring the current budget into surplus by 2030, but the October deficit on that basis was £12.6bn, £2.6bn more than the OBR forecast.
Shadow chancellor Mel Stride said Labour should control spending to avoid tax rises next week, while the Treasury has already floated and ditched plans to raise income tax. The budget is set against a difficult political background, with the OBR expected to downgrade economic forecasts and the chancellor seeking to increase her headroom.
