The UK’s budget deficit for the 2024/25 financial year exceeded forecasts, according to Reuters. Over the reporting period, the government borrowed nearly £15 billion more than official budget analysts had predicted just a month earlier.
According to the Office for National Statistics (ONS), net public sector borrowing for 2024/25 amounted to £151.9 billion ($202.1 billion). Reuters notes that this is the third-highest figure for government borrowing in monetary terms in the country’s history.
In March, the Office for Budget Responsibility (OBR) had forecast a deficit of £137.3 billion for the financial year ending in March. However, actual figures surpassed expectations.
In terms of GDP, the budget deficit for 2024/25 reached 5.3%, compared to 4.8% a year earlier. A month ago, the OBR also projected a 4.8% deficit for the recently concluded financial year.
Analysts from the Institute for Fiscal Studies warn that these new figures suggest the government may have just £10 billion of fiscal headroom by 2029/30 before breaching fiscal rules.
In March alone, the UK government borrowed £16.444 billion, slightly exceeding the consensus forecast of £16 billion from economists surveyed by Reuters.
Debt servicing costs in March rose to £4.3 billion, setting a monthly record.
Reuters notes that in recent years, UK government bonds have become increasingly volatile, reflecting market concerns about weak economic growth, the high cost of debt servicing, and persistent inflation.
In response to the borrowing limit being exceeded, the UK Debt Management Office announced on Wednesday that it plans to increase the issuance of Treasury bills rather than traditional government bonds.
Context Behind the Deficit Increase
The rise in the UK budget deficit during the 2024/25 financial year was driven by a combination of factors. Among them were increased spending on social programs and healthcare, along with higher debt servicing costs amid elevated interest rates. Moreover, amid slowing economic growth, tax revenues fell short of expectations, adding further pressure to public finances. Analysts note that the government faces the difficult task of balancing the need to stimulate the economy with the obligation to maintain debt control.
Historical Comparison
The current level of borrowing is surpassed only by the figures recorded during the COVID-19 pandemic and the global financial crisis of 2008. At those times, the government also had to dramatically ramp up spending to support the economy. Despite post-pandemic stabilization, a return to pre-pandemic borrowing levels remains out of reach. The new record for monthly debt servicing costs echoes the risks associated with those earlier crises.
Impact on Citizens
For ordinary citizens, the growing budget deficit could lead to further changes in fiscal policy. In the future, the government may be forced to raise taxes, cut public spending, or review social programs. Experts also warn that the high level of borrowing increases the risk of higher inflation and more expensive loans for businesses and households, which could, in turn, slow economic recovery and heighten financial pressure on families.
Future Outlook
Economists caution that restoring the UK’s financial balance over the coming years will be a formidable challenge. If current trends persist, the budget deficit is expected to remain high, limiting the government’s ability to launch new initiatives without additional borrowing. Authorities are likely to be forced to revise tax policies, including possible tax hikes for businesses and individuals, as well as tighter control over public spending.
The Office for Budget Responsibility has previously indicated that without substantial economic growth, the government’s fiscal headroom could shrink to just £10 billion by 2029/30. This would make the financial system more vulnerable to economic shocks, such as new crises or rising interest rates.
Another potential challenge is political instability: upcoming elections and possible changes in government could influence budgetary priorities. At the same time, several economists stress that investments in infrastructure, the “green” economy, and technology could drive long-term growth, provided private investment can be attracted and productivity improved.