(Bloomberg) -- Debt costs pushed up UK government borrowing more than forecast last month, highlighting the fiscal challenges facing Chancellor of the Exchequer Rachel Reeves.
The budget deficit totaled £17.8 billion ($21.9 billion) in December, more than double the £7.7 billion recorded a year earlier, the Office for National Statistics said Wednesday.
It left the shortfall in the first nine months of the fiscal year at £129.9 billion - £4 billion higher than forecast by the Office for Budget Responsibility at the time of budget on Oct. 30.
The increase in December was driven by the cost of servicing inflation-linked bonds, which account for around a quarter of the total government debt stock. Overall debt costs were at £8.3 billion, £3.8 billion more than a year earlier. There were also increases in welfare payments and public-sector pay.
Stubborn inflation, a surge in gilt yields since the budget and a deteriorating growth outlook have left Reeves in danger of breaking her own fiscal rules, which require day-to-day spending to be covered by tax revenue by the 2029-30 fiscal year.
At the budget Reeves was deemed to have just £9.9 billion of headroom but that has likely been wiped out by the rise in government borrowing costs earlier this month.
Reeves has pledged not to raise taxes again after launching a £40 billion raid in October. She is said to favor spending cuts instead, opening Labour to criticism that it is returning to the austerity. With departmental spending plans beyond 2026 already tight, Reeves may also struggle to convince investors that she can deliver further cuts.
--With assistance from Joel Rinneby, Harumi Ichikura and Mark Evans.
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