Britain's government borrowed more than anticipated in July, according to official data released on Wednesday. The figures underscore the financial challenges facing
new finance minister Rachel Reeves as she prepares her first annual budget.
The Office for National Statistics (ONS) reported that public sector net borrowing reached £3.101 billion ($4.04 billion) in July. This marks the highest July borrowing total since 2021, a period when the deficit soared due to the COVID-19 pandemic.
Economists polled by Reuters had predicted a median forecast of £1.5 billion for public sector net borrowing, excluding state-controlled banks.
The ONS attributed the increased borrowing to rising social benefits, driven by inflation, and higher government wages compared to a year ago.
These figures do not account for recent pay agreements between the newly elected Labour government and public sector workers, including junior doctors. The Labour government, which won by a landslide last month, has yet to factor in these costs.
Finance minister Reeves has already indicated that taxes will rise in her October 30 budget, though she has ruled out hikes in income, corporation, and value-added tax rates. This leaves little flexibility to enhance public services or increase investment.
Deputy finance minister Darren Jones pointed to Wednesday’s data as further evidence of the "dire inheritance" left by the previous Conservative government.
To date, the government has borrowed £51.4 billion over the first four months of the 2024/25 financial year, which is about £5 billion more than the Office for Budget Responsibility had forecast.
In response, Reeves launched an immediate review of the government's finances, revealing that Britain is on track to exceed budget plans by £22 billion this financial year.
The opposition Conservative Party has suggested that Reeves is laying the groundwork for potential increases in taxes on capital gains or inheritances.
Rob Wood, chief UK economist at Pantheon Macroeconomics, remarked, "We expect Reeves to borrow around £20 billion more per year than planned in the March Budget for the next five years, in addition to funding medium-term spending with higher taxes."
Public debt, excluding state-owned banks, stood at £2.75 trillion in July, which is approximately 99.4% of the country's gross domestic product (GDP).
On Wednesday, the ONS also announced that it would no longer classify NatWest Group plc as a public sector bank, as public ownership has dropped below 25%. This change will remove about £372 billion from the public debt measure that includes state-owned banks, aligning it more closely with the headline debt figure that excludes these banks.