UK Borrowing Drops to Two-Decade Low in December

Source: Coindoo Original Title: UK Borrowing Drops to Two-Decade Low in December Original Link: UK government borrowing dropped far more than anticipated in December, offering a rare positive signal for the country’s strained public finances.

Fresh data from the Office for National Statistics showed the gap between public spending and revenue narrowed substantially, beating both official forecasts and market expectations.

Key Takeaways

• December borrowing fell sharply below forecasts, marking the lowest December level in over two decades
• Strong payroll and income tax receipts were the main reason for the improvement
• The data offers short-term relief for Chancellor Rachel Reeves, though longer-term fiscal challenges remain

The shortfall stood at £11.6 billion, a notable improvement compared with the same month a year earlier. It was also well below projections from the government’s own budget watchdog and private-sector economists, making it the weakest December borrowing figure recorded since 2003.

Strong tax receipts drive improvement

The main driver behind the better-than-expected result was a sharp rise in tax income. Payroll levies introduced earlier in the year, combined with resilient wage growth, have significantly boosted government revenues. Income tax and national insurance contributions delivered particularly strong gains, reinforcing signs that recent fiscal measures are feeding through more quickly than anticipated.

Corporation tax receipts were also revised higher for previous months, adding to the overall improvement in the fiscal picture. These stronger inflows helped counter ongoing spending pressures, including higher costs linked to education, public services, and social support programs.

Spending pressures remain but growth is contained

While public spending continues to face upward pressure, the pace of increase has been relatively moderate. Central government day-to-day expenditure rose only slightly compared with last year, while net investment in capital projects declined, helping to limit the overall deficit.

Revisions to historical borrowing data further improved the picture, with earlier estimates adjusted lower. Together, these factors pushed cumulative borrowing for the current fiscal year slightly below previous expectations.

Relief for Reeves as debt stays near historic highs

The figures offer welcome breathing room for Chancellor Rachel Reeves, who is under pressure to demonstrate progress on stabilizing the UK’s finances. Public debt recently climbed to around 95.5% of GDP, a level not seen since the early 1960s, intensifying scrutiny from investors and credit markets.

Tax rises announced in last autumn’s budget were designed to reassure bond markets and rebuild fiscal headroom. The latest data suggests those measures are beginning to deliver, at least in the near term, by widening the margin against the government’s fiscal rules.

January surplus expected as tax inflows accelerate

Looking ahead, a significant surplus is expected in January as self-assessed income taxes are paid before the deadline. Capital gains tax receipts are also projected to jump, reflecting asset sales brought forward ahead of anticipated tax changes.

Despite the recent improvement, economists remain cautious. Some warn that while the direction of travel is positive, the pace of deficit reduction remains slow and vulnerable to political pressure, economic shocks, or weaker growth in future years.