UK government borrows more than expected in setback before budget

The UK government borrowed more than expected in October, official figures show, in the final snapshot of the public finances before Rachel Reeves’s crunch budget. The Office for National Statistics said borrowing – the difference between public spending and income – was £17.4bn last month. That was lower than the same month last year, but still the third highest October deficit on record. It was also above the £15bn City economists had forecast. Related: Could you do better than Reeves as chancellor? Play our interactive budget game In the fiscal year so far, borrowing is running at £116.8bn – 8.4% higher than the equivalent period in 2024, the ONS added, underlining the challenge facing Reeves in balancing the books. This year-to-date deficit is £9.9bn more than the independent Office for Budget Responsibility (OBR) expected the government would be borrowing at this point. It will publish new forecasts alongside the budget next week. Martin Beck, the chief economist at the consultancy WPI Strategy, said: “As things stand, total borrowing in 2025-26 could overshoot the OBR’s full-year forecast by around £10bn, pushing the deficit close to 5% of GDP. “Combined with policy U-turns, market movements, and a deteriorating productivity outlook, the chancellor’s headroom against her fiscal rules has almost certainly vanished.” The ONS said central government spending was £3.7bn higher in October than a year ago – pointing to rising benefits payments because of higher than expected inflation, and pay increases for public servants. Reeves will deliver her second budget on Wednesday against a difficult political background, after the Treasury floated and then ditched plans to raise income tax. She is expected to raise taxes significantly, in response to a downgrade in economic forecasts from the OBR, and in order to increase the £10bn headroom against her fiscal rules. The chief secretary to the Treasury, James Murray, said the data underlined the importance of Reeves’s efforts to bring the public finances under control. “Currently we spend £1 in every £10 of taxpayer money on the interest of our national debt. That money should be going to our schools, hospitals, police and armed forces. That is why we are set to deliver the largest primary deficit reduction in both the G7 and G20 over the next five years – to get borrowing costs down,” he said. The ONS said the government had to pay £8.4bn in debt interest in October – as payments on inflation-linked gilts, or government bonds, were larger than expected due to continued high inflation. Alongside tax rises, Reeves is also expected to deliver a package of cost of living measures in the budget, aimed at bringing inflation down. As a first step, she announced on Friday that prescription charges will be frozen for another year. Reeves’s first fiscal rule says she should try to bring the current budget into surplus by 2030 – so that day-to-day spending is matched by revenues. The ONS said the deficit on this measure was £12.6bn in October, £2.6bn than forecast by the OBR. The shadow chancellor, Mel Stride, said: “If Labour had any backbone, they would control spending to avoid tax rises next week. While Labour plan to spend more and more, Conservatives would cut the deficit and cut taxes with our golden economic rule and our £47bn savings plan.”