UK government borrowing surged to £10.7bn in February, surpassing forecasts and highlighting the growing financial challenge for Chancellor Rachel Reeves ahead of next week’s spring statement.
According to the Office for National Statistics (ONS), public sector borrowing – the gap between spending and revenue – remained largely unchanged from the previous year. However, for the financial year so far, borrowing has increased by nearly £15bn compared to the same period in 2023.
In a setback for the chancellor, the borrowing figure exceeded market expectations. A Reuters poll had predicted a £6.6bn deficit, significantly lower than the actual figure.
Reeves is preparing to unveil what could be the most substantial spending cuts since the austerity era at the upcoming spring statement. The move comes amid weak economic growth, persistent inflation, and rising government borrowing costs.
Updated forecasts from the Office for Budget Responsibility (OBR) are expected to show that Reeves’ fiscal targets would be unattainable without decisive action. This could further justify the government’s recent welfare cuts, which have already sparked controversy.
At the last budget in October, Reeves had a £9.9bn cushion to meet her key fiscal rule, which requires day-to-day spending to be covered by revenue. However, soaring borrowing costs and a bleak economic outlook have significantly eroded this headroom.
The latest OBR projections suggest the UK’s economic growth rate for 2025 will be slashed from 2% to around 1%, according to reports in *The Telegraph*.
James Smith, research director at the Resolution Foundation, said the figures highlight the “perilous state” of the UK’s finances.
“The chancellor is reportedly ruling out tax rises to meet these rules and is set to cut spending on benefits and public services instead. But, if the economy doesn’t turn a corner soon, tax rises will need to come back into play,” he warned.
Data shows the UK has borrowed £132bn in the first 11 months of the 2024-25 financial year, making it the third-highest borrowing level for this period since records began in 1993.
Isabel Stockton, a senior economist at the Institute for Fiscal Studies, suggested borrowing could reach £151bn by the end of the financial year, exceeding the OBR’s previous forecast by £23bn.
“Having boxed herself in with promises to meet her fiscal targets, not to raise taxes further and not to return to austerity for public services, easy or risk-free options for the chancellor are in short supply,” she said.
Reeves has repeatedly emphasised that her fiscal rules are “non-negotiable,” drawing a sharp contrast with the economic turmoil caused by Liz Truss’ mini-budget. However, by ruling out tax increases, the government is left with few alternatives beyond spending cuts and efficiency drives.
The proposed spending cuts are causing unease among Labour backbenchers and raising concerns about the party’s commitments to economic growth and public services.
In a letter to *The Financial Times*, a group of leading UK economists warned that slashing spending or investment would be a “profound mistake.” Signatories included King’s College London’s Jonathan Portes, UCL’s Mariana Mazzucato, and Oxford’s David Vines.
“The last 15 years have taught us that the UK cannot cut its way to growth,” they wrote, calling for tax increases on the wealthy instead.
Louis Willis, director of the Invest in Britain campaign, echoed these concerns, stating, “The fiscal pressures facing the government are significant. But the chancellor should not be reaching for the old, failed playbook of cuts in response.”
Despite the backlash, Treasury officials insist that firm action is necessary. Darren Jones, the Chief Secretary to the Treasury, emphasised the importance of financial stability.
“At the core of this urgent mission is sound public finances, based on our non-negotiable fiscal rules. This government will never play fast and loose with the public finances.”,” he said.
As the UK heads into a critical economic period, all eyes will be on Reeves’ spring statement next week to see how she balances fiscal responsibility with economic growth.
