The UK’s debt bill fell last month as government borrowing dropped to just over £11bn, giving Rachel Reeves an early Christmas present after a furious backlash from business leaders to her budget.
Official figures showed the interest payable on central government debt was £3bn, much lower than analysts expected and a decrease of £4.7bn from the same month in 2023, to give the lowest November figure since 2019.
The Office for National Statistics said borrowing in November was £11.2bn, based on the longstanding measure of public sector net borrowing (PSNB), well below the £13bn City economists had forecast, and the lowest November borrowing in three years.
The figures are a fillip for Reeves, as she faces a backlash over tax-raising measures in the budget and gloomy growth forecasts for the UK economy.
Lower borrowing costs and higher tax receipts helped bring down the deficit, while tax rises on businesses due next year should help further to improve the public finances.
Businesses have criticised measures announced in Reeves’s debut budget in October, including a rise in employer national insurance contributions designed to raise £25bn.
However, some analysts warned that Reeves might need to embark on another round of belt-tightening if the economy failed to pick up and generate higher tax receipts.
Recent forecasts have shown economic growth slowing to zero by the end of the year while inflation rises and interest rates remain at a high level.
The Bank of England kept interest rates fixed at 4.75% at a meeting on Thursday and warned that the economy was slowing as it entered 2025.
Without a growing economy, the chancellor can expect tax receipts to grow at a slower pace than Whitehall’s costs, raising the prospect of higher taxes or lower spending to limit further increases in borrowing.
A breakdown of the UK’s borrowing revealed that £2.4bn higher spending on public sector pay left total current expenditure in the year to date £17.7bn higher than at the same stage last year.
The increase in spending was offset by higher income tax receipts after the recent strength in wage growth and the previous government’s decision to freeze personal tax thresholds, giving Reeves an additional £3.2bn than in November 2023.
Ruth Gregory, the deputy chief UK economist at the consultancy Capital Economics, said “Christmas has come early for the chancellor with borrowing undershooting expectations in November.
“But the weakening in the economy and recent rises in market interest rates suggest the government will still struggle to bring the deficit down as quickly as planned.”
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She said lower growth and the potential for borrowing costs to rise increased the likelihood that Reeves will be forced to introduce further tough measures next year.
Revisions by the ONS to earlier months increased borrowing by £6.3bn, indicating that the overall debt burden will rise under the government’s new measure, which takes into account government assets, from 83.7% of national income (GDP) in October to 84.6%.
In the budget, the chancellor switched from gauging debt according to the PSNB measure and adopted the public sector net financial liabilities measure, which she said gave a more comprehensive view of the government’s public finances.
Gregory added: “Overall, the chancellor will be encouraged by November’s public finances figures. But the combination of a weakening economy and the recent rises in market interest rates means there is a growing chance that to meet her fiscal rules, extra revenue-raising tax hikes or spending cuts will be required.”
Alison Ring, the director of public sector and taxation at the Institute of Chartered Accountants in England and Wales, also warned that the chancellor’s room for manoeuvre was unlikely to improve over the next year.
“What will worry government is that recent economic indicators such as weak GDP growth and rising inflation are flashing amber, and what this could mean for tax receipts and the cost of servicing government debt in 2025. Money remains extremely tight and that is unlikely to change any time soon.”