UK Borrowing Overshoot Adds Pressure on Chancellor Ahead of Budget

Britain's government borrowing in August exceeded expectations, reaching £18.3 billion (US$24.5 billion), according to the Office for National Statistics (ONS). This is higher than all forecasts in a Reuters poll of economists, which had pointed to a £15.5 billion deficit.

The increased borrowing has added to the pressure on Chancellor John Healey ahead of his first Budget next month, scheduled for October 28. Healey must show how he can meet his fiscal rules without raising main taxes, having promised to control spending that is being pushed higher by inflation.

Investors are worried about further borrowing by the new government, causing gilt futures to sink and yields in the cash market to rise modestly after the data release. British government bond yields have soared since the Iran war pushed up global oil and gas prices, reflecting the risk of a damaging rise in inflation caused by Britain's reliance on imported energy.

Healey will face significantly higher spending pressures if he tries to meet his well-flagged priorities of boosting investment in housing, reforming social care, and increasing defense spending. The government's primary fiscal rules have been made more challenging by the increase in borrowing costs and market expectations for rising Bank of England interest rates.