The UK government borrowed more than expected in October, according to new official figures, marking a setback for ministers ahead of Rachel Reeves’s highly anticipated budget.
The Office for National Statistics (ONS) reported that public sector borrowing reached £17.4bn last month. Although this is lower than the same month last year, it remains the third-highest October deficit on record and surpassed the £15bn predicted by City economists.
Since the start of the fiscal year, borrowing has climbed to £116.8bn, which is 8.4 percent higher than the equivalent period in 2024. The ONS said this underlines the scale of the challenge Reeves faces in attempting to stabilise the public finances.
This year’s cumulative deficit now stands £9.9bn above the forecast issued by the Office for Budget Responsibility (OBR). Updated OBR projections will accompany next week’s budget.
Martin Beck, chief economist at WPI Strategy, warned of further strains on the fiscal outlook. He said: “As things stand, total borrowing in 2025-26 could overshoot the OBR’s full-year forecast by around £10bn, pushing the deficit close to 5% of GDP. Combined with policy U-turns, market movements, and a deteriorating productivity outlook, the chancellor’s headroom against her fiscal rules has almost certainly vanished.”
According to the ONS, central government spending was £3.7bn higher in October compared with last year, driven largely by rising benefits linked to higher-than-expected inflation and recent pay settlements in the public sector.
Reeves will present her second budget on Wednesday against difficult political conditions, following the Treasury’s decision to drop proposals to increase income tax. She is widely expected to introduce substantial tax rises, triggered by weaker economic forecasts from the OBR and a need to reinforce the government’s £10bn fiscal buffer.
Nick Ridpath, research economist at the Institute for Fiscal Studies, noted that the widening gap between actual borrowing and OBR projections underscores the need for caution. He said: “Operating with minimal fiscal margin for error is risky, and this is one reason why the chancellor might sensibly take steps to increase her so-called ‘fiscal headroom’ at next week’s budget.”
The chief secretary to the Treasury, James Murray, said the figures highlight the urgency of restoring financial discipline. He stated: “Currently we spend £1 in every £10 of taxpayer money on the interest of our national debt. That money should be going to our schools, hospitals, police and armed forces.”
In October, the government spent £8.4bn on debt interest, largely due to higher-than-expected payments on inflation-linked gilts as inflation remained elevated.
Alongside tax increases, Reeves is expected to set out new cost of living measures aimed at easing inflationary pressures. She has already confirmed that prescription charges will be frozen for another year.
Reeves’s main fiscal rule is to return the current budget to surplus by 2030. The ONS revealed that the deficit on this measure was £12.6bn in October, which is £2.6bn higher than the OBR had forecast.
Shadow chancellor Mel Stride criticised Labour’s approach, arguing: “If Labour had any backbone, they would control spending to avoid tax rises next week. While Labour plan to spend more and more, Conservatives would cut the deficit and cut taxes with our golden economic rule and our £47bn savings plan.”
