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UK government borrowing unexpectedly rose in April on the back of increased public spending, piling pressure on chancellor Rachel Reeves ahead of a high-stakes spending review next month.
Figures published on Thursday by the Office for National Statistics showed that borrowing was £20.2bn in the first month of the new tax year, up from a shortfall of £19.1bn in April 2024.
Economists polled by Reuters had forecast that the difference between public sector spending and income would fall to £17.9bn last month.
April’s overshoot was led by an increase in spending on public services and benefits, the ONS said.
The spending jump of £6.6bn year-on-year overshadowed a rise in receipts of £5.6bn, which was partly driven by higher employer national insurance contributions announced by Reeves at the Budget.
Despite the NICs boost, “the fiscal year got off to a poor start”, said Ruth Gregory, economist at the consultancy Capital Economics. “This raises the chances that if the chancellor wishes to stick to her fiscal rules, more tax hikes in the autumn Budget will be required.”
Reeves will set out detailed expenditure plans for individual government departments in her June 11 spending review — the first by a Labour government since the 2000s.
She is under pressure to meet her fiscal rule to balance day-to-day spending with revenues by 2029-30 while improving public services and spurring growth.
The chancellor’s slender room for manoeuvre, which was last calculated at £9.9bn, is set to be put under further pressure by the economic impact of US President Donald Trump’s tariffs.
In a sign of the political pressures on the government, Prime Minister Sir Keir Starmer on Wednesday announced a partial U-turn on a cut to winter fuel payments that Reeves unveiled last July.
The U-turn was a sign of the challenge Reeves faces on keeping a tight grip on public spending ahead of an autumn Budget in which she will face calls from within her own party to raise taxes.
In a memo sent to Reeves before her Spring Statement in late March, deputy prime minister Angela Rayner urged the chancellor to make further tax increases rather than cutting public spending.
Responding to April’s figures, Darren Jones, chief secretary to the Treasury, said: “After years of economic instability crippling the public purse, we have taken the decisions to stabilise our public finances, which has helped deliver four interest rate cuts since August, cutting the cost of borrowing for businesses and working people.”
Despite the economy expanding at its fastest pace in a year in the first quarter, the Bank of England expects growth to slow.
Separate figures released on Thursday showed that private sector activity contracted in May, albeit at a slower rate than in April.
The S&P Global flash UK PMI composite output index climbed to 49.4 this month from a 29-month low of 48.5 in April. A reading below 50 indicates a majority of businesses reported a contraction in activity.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said that following an “awful April” companies had reported a “milder May”.
Thursday’s ONS data also showed government borrowing was revised down to £148.3bn in the 2024-25 fiscal year — from the ONS’s previous estimate of £151.9bn, but still £11bn above the £137.3bn forecast by the Office for Budget Responsibility, the UK’s fiscal watchdog.
The current budget deficit was £70.3bn in the fiscal year ending March 2025, £8.4bn more than in the fiscal year ending March 2024 and higher than the £60.7bn forecast by the OBR.
Elliott Jordan-Doak, economist at the consultancy Pantheon Macroeconomics, said: “The bigger picture is that April’s figures likely represent a continuation of the public sector borrowing overrunning expectations.”
In March, the OBR forecast borrowing to fall to £117.7bn this year. However, with much of the overrun in borrowing down to tax receipts falling short of expectations, Jordan-Doak said “that fall seems ambitious to us”.
