UK faces £9.9 billion borrowing overshoot ahead of budget

Britain remains on course to borrow billions more than forecast this year, underscoring the perilous state of the public finances as Chancellor of the Exchequer Rachel Reeves prepares her make-or-break budget.

The deficit in the first seven months of the 2025-26 fiscal year climbed to £116.8 billion — almost £10 billion more than the Office for Budget Responsibility projected in March.

Borrowing in October alone came in above forecasts at £17.4 billion, the third-highest for the month on record.

The figures are the final snapshot of the national finances before Reeves unveils her highly anticipated budget on November 26. The chancellor is widely expected to announce a “smorgasbord” of tax hikes targeting the wealthy to fill a £20 billion hole created by a productivity downgrade, higher borrowing costs and U-turns over welfare cuts, and to increase her existing £9.9 billion headroom.

Evidence is mounting that the prospect of more fiscal pain is dragging on consumer spending and the housing market, potentially undercutting the growth that Prime Minister Keir Starmer’s Labour administration has pledged to deliver.

With bond markets jittery about a government debt pile that is now almost the size of the UK economy, Reeves has committed herself to “iron-clad” fiscal rules that require tax revenue and day-to-day spending to be in balance by the end of the decade.

The latest figures show the scale of the challenge facing the chancellor.

The current budget, which excludes investment and is the basis of the chancellor’s main fiscal rule, was in deficit by £83.9 billion between April and October, the Office for National Statistics said.

That’s £15.1 billion more than the OBR expected. Investment has been running below forecasts, suggesting the government is struggling to deliver projects it says are needed to boost the economy.

To cover the borrowing overshoot the government will issue £9 billion more in gilts this fiscal year than announced by the Debt Management Office in April, according to the median estimate of 14 primary dealers surveyed by Bloomberg.

That would lift sales for the year to £308.1 billion, the highest level since 2021, when pandemic relief programs forced a sharp increase in borrowing.

For Reeves and Starmer, the stakes at the budget could barely be higher after 16 months in government marred by missteps that have occasionally roiled bond markets and sent Labour plummeting in opinion polls.

Reeves dropped a plan to raise income tax rates after receiving better-than-expected forecasts from the OBR, though the chancellor was also facing pressure from lawmakers who feared voters would punish Labour for breaking a manifesto pledge not to increase taxes on working people.

The U-turn has left Reeves needing to raise as much as £30 billion from other sources. Extending a six-year freeze on tax thresholds appears on the cards with the rest coming from smaller measures aimed at wealth and property.

While markets would reward bold action to shore up the public finances by pushing down government borrowing costs, the risk is that Reeves will instead “pencil in the bulk of the fiscal adjustment toward the end of the decade and lean on numerous small revenue-raising measures,” Dan Hanson and Ana Andrade wrote in a pre-budget analysis. “That’s a riskier strategy and one that investors may not buy.”