Rachel Reeves, the Chancellor of the Exchequer, has been encouraged to utilize the upcoming budget to establish greater fiscal flexibility after recent reports indicated that UK government borrowing exceeded forecasts by nearly £10 billion for the year ending in October. According to the Office for National Statistics (ONS), borrowing stood at £17.4 billion for October, marking a decline compared to the same month last year but still representing the third-highest deficit for October on record.
For the current fiscal year to date, borrowing is reported at £116.8 billion, which is £9.9 billion above the expectations set by the independent Office for Budget Responsibility (OBR). The OBR is anticipated to release new forecasts concurrently with the budget next week. Some economists predict that if the borrowing trend continues, the total could surpass the OBR’s full-year forecast by around £10 billion, placing the deficit close to 5% of GDP. This situation raises questions about the Chancellor’s remaining fiscal space in relation to her fiscal rules.
Market analysts have pointed out that the bond market will closely scrutinize how much fiscal headroom Reeves can maintain as she prepares the budget. Recent figures indicate that central government spending has increased due to rising benefits and public sector pay. Whether Reeves will raise taxes significantly remains a point of discussion, especially following the decision to abandon previous plans to increase income tax.
In addition to managing tax rates, the Chancellor is also expected to propose measures aimed at addressing the cost of living, including a freeze on prescription charges for an additional year. As per her fiscal strategy, Reeves aims to bring the current budget into surplus by 2030. However, the recent borrowing data may complicate these goals, especially in light of the first decline in retail sales since May. Questions linger regarding how these financial pressures will influence forthcoming policy decisions and the overall economic landscape in the UK.
Source: https://www.theguardian.com/business/2025/nov/21/uk-government-borrowing-october-rachel-reeves