Overview: Borrowing in December Erases the Gap with Forecasts
New figures from the Office for National Statistics (ONS) show that total government borrowing in December 2024–January 2025 reached £11.6 billion. That outturn was notably lower than the City’s forecast of £13.4 billion, offering a sharper close to the calendar year. When the dust settles on the full financial year, borrowing for 2024/25 stands at £140.4 billion, marginally above the Office for Budget Responsibility (OBR) forecast of £138.3 billion. The data confirms a pattern of tighter-than-expected public finances in late 2024 and early 2025, even as the annual total remains elevated by a historically high debt burden.
What the December Reading Indicates
The December borrowing outcome is important because it reflects activity across government receipts and expenditures during a peak period for tax collection, welfare spending, and investment programs. A lower December figure compared with forecasters suggests several possible dynamics:
– Slower growth in current spending, including health and social care costs, relative to expectations.
– A stronger-than-anticipated rise in self-assessed receipts or one-off inflows that offset outlays.
– Fiscal measures or windfalls that trimmed near-term borrowing needs.
Comparing with OBR Forecasts
Despite the December miss relative to City estimates, the full-year outcome sits just above the OBR baseline forecast. The OBR often revises its projections as new data arrive, and today’s numbers could influence the next set of fiscal risk assessments. The gap between actual borrowing and the OBR forecast matters for how markets interpret the strength of the public finances and the path of debt accumulation. It also feeds into debates about how quickly borrowing costs might ease as inflation cools and the economy modulates growth in 2025.
Implications for Debt and Interest Costs
With borrowing finishing the year above the OBR’s projection, questions arise about debt servicing and long-term sustainability. Higher absolute borrowing can push up the government’s aggregate debt stock, even if interest rates remain volatile. If inflation and wage dynamics calm, the government could aim for a gradual easing of debt costs via lower gilt yields or longer-dated borrowing. Conversely, persistent budget pressures—such as a slower rise in receipts or persistent spending commitments—could sustain higher debt interest payments for longer than expected.
What This Means for Fiscal Policy
The December reading provides policymakers with a clearer scope for what lies ahead. If borrowing remains elevated, there could be calls for tighter emergency reserves or a tighter supply of new borrowing to stabilize public finances. Yet authorities may also weigh growth-supportive measures to ensure the economy does not lose momentum in a cautious global environment. The balance between consolidating the deficit and supporting investment will continue to shape budget decisions, particularly around welfare, health, and infrastructure funding.
Outlook for 2025/26
Analysts will be watching how the spring budget and subsequent fiscal updates reflect this year’s outturn. Key questions include whether the OBR revises its medium-term debt trajectory, how anticipated inflation and wage growth evolve, and how the government prioritizes debt management strategies. If debt interest costs remain a concern, any steps to curb borrowing or slow the growth rate of public spending could be introduced gradually and with cross-party support to maintain credibility with financial markets and the public alike.
Bottom line
December’s £11.6 billion borrowing figure was better than some forecasts, but the annual total of £140.4 billion still sits above earlier OBR projections. The numbers underscore a challenging fiscal environment where the government must balance the needs of public services with the pressures of debt sustainability, all while navigating a slowly evolving economic backdrop.
