22 May 2025
If you are covering public sector finance data from the ONS, please see the following comment from Lindsay James, investment strategist at Quilter:
The latest public sector finance figures have revealed that UK government borrowing hit £20.2 billion in April, £1.0 billion more than the same month last year and the fourth-highest April borrowing figure since monthly records began in 1993. While some seasonal volatility is to be expected, the figures will do little to ease growing concerns around the sustainability of the UK’s fiscal position.
The updated estimate for borrowing across the full 2024/25 financial year now stands at £148.3 billion. Although this represents a £3.7 billion downward revision from last month’s initial estimate, it still overshoots the Office for Budget Responsibility’s forecast by £11.0 billion. Meanwhile, the current budget deficit – which measures borrowing for day-to-day government activity – has come in at £70.3 billion, again higher than forecast by £9.6 billion.
Markets are already showing signs of unease. Ten-year gilt yields have edged higher in recent weeks as investors reassess the UK’s fiscal outlook against a backdrop of weak growth, persistent inflation, and rising global debt burdens. Public sector net debt now sits at 95.5% of GDP – up 0.7 percentage points on the year – with net financial liabilities also rising to 83.5%. These are levels not seen since the early 1960s and underscore the challenge facing policymakers.
Investor sentiment is starting to harden. According to our latest survey, more than 70% of respondents expect tax rises to feature in the Autumn Budget, with 65% also anticipating spending cuts. A further 59% believe the Chancellor may be forced to alter the fiscal rules, and nearly a quarter expect a change in leadership at the Treasury should growth continue to disappoint.
The decision to hold off on tax rises in the Spring Budget increasingly looks like a temporary reprieve. As borrowing continues to outstrip forecasts and debt interest costs remain elevated, pressure is building on the Chancellor to make tougher choices. Without a material pickup in economic growth or productivity, modest tax increases and targeted spending restraint appear the most plausible route to maintain credibility with both markets and voters.
The winter fuel payment debacle illustrates how much pressure the government is under. The fact it has had to U-turn on this policy change illustrates how much pressure the government is under.
Today’s data shows that the government remains on the back foot, constrained by self-imposed rules while juggling rising costs and tepid revenue growth. If borrowing continues to overshoot expectations, further fiscal tightening might be inevitable in the autumn, not because it is politically desirable but because the numbers leave little room for anything else.
