The UK government's borrowing surged to £24.3 billion in April, significantly exceeding forecasts and marking the second-highest April total ever recorded, surpassed only during the peak of the Covid pandemic. This figure represents a £4.9 billion increase compared to the previous year and was £3.4 billion higher than the Office for Budget Responsibility's (OBR) prediction of £20.9 billion.
Record Debt Interest Costs Drive Borrowing
The significant rise was primarily driven by record debt interest costs, which reached £10.3 billion in April, an increase of £900 million from a year ago. This surge is largely due to rising inflation impacting index-linked gilts. Higher-than-planned welfare spending also contributed to the increased borrowing, while the Office for National Statistics (ONS) revised down the borrowing for the financial year to March by £3 billion to £129 billion.
Economic and Political Uncertainty
Experts warn that debt interest costs are expected to continue rising in the coming months due to soaring inflation and pressure on UK government bonds (gilts) amid economic and political uncertainty. Political risk may further add to borrowing costs, compounding the challenges facing Chancellor Rachel Reeves as she grapples with a rising deficit.
In response, Reeves has announced a cost of living support package, including a summer VAT cut and suspended food tariffs, aimed at alleviating pressure on households. However, the latest borrowing figures underscore the fragility of the UK's fiscal position, with the deficit widening faster than anticipated.
