Government borrowing in the UK dropped significantly in November, attributed to higher tax revenues and reduced debt interest payments, according to the Office for National Statistics (ONS). Borrowing, which reflects the gap between government spending and tax income, fell to £11.2bn — the lowest November figure since 2021.
The borrowing figure was £3.4bn lower than the same period last year and well below forecasts of £13bn. Total borrowing for the financial year so far stands at £113.2bn, which is less than the same period last year but £2bn above the Office for Budget Responsibility’s (OBR) projections.
Debt Interest and Inflation
Debt interest payments dropped by £4.7bn to £3bn, largely due to lower inflation. Ruth Gregory, deputy chief UK economist at Capital Economics, said this lower-than-expected borrowing figure was “an early Christmas gift” for Chancellor Rachel Reeves. However, she cautioned that the UK’s slowing economy might lead to further tax hikes or spending cuts.
Dennis Tatarkov, a senior economist at KPMG UK, echoed this sentiment, noting that the government’s relief from reduced interest payments might not last due to rising inflation projections.
Retail Sales Recovery
Retail sales increased slightly by 0.2% in November after a 0.7% drop in October, driven by stronger supermarket sales. However, clothing sales and department stores saw declines as consumer confidence remained low.
Nick Stowe, CEO of Monsoon Accessorize, described demand as “quite soft,” attributing it to cautious consumer spending amid economic uncertainty. The ONS noted that its retail sales data did not account for Black Friday on 29 November, potentially skewing the results.
Economic Outlook
The Bank of England recently held interest rates steady, citing worse-than-expected economic performance. Growth forecasts for the final quarter of 2024 were revised down to zero, from an earlier estimate of 0.3%. Inflation reached 2.6% in November, exceeding the Bank’s 2% target.
Darren Jones, Chief Secretary to the Treasury, highlighted the government’s focus on investment and reform to stimulate growth, stating they had “inherited crumbling public services and crippled public finances.”
Despite November’s positive borrowing figures, experts warned that challenges such as weak economic growth and rising inflation could impact the government’s fiscal plans, with long-term pressures expected to persist.
