UK Borrowing Surpasses Expectations, Adding to Tough Budget Outlook

Britain's government borrowing has surpassed expectations in August, pushing the deficit for the financial year to date further above official forecasts.

The Public Sector Net Borrowing (PSNB) stood at £18.3 billion ($24.5 billion) in August, exceeding all forecasts in a Reuters poll of economists.

With investors concerned about potential future borrowing by the new government, gilt futures fell 20 ticks before recovering, and yields in the cash market rose modestly as it opened.

Finance Minister John Healey faces pressure to meet fiscal rules without raising main taxes, having promised to control spending that is being pushed higher by inflation.

The forecasts that underpin the budget will incorporate higher government borrowing costs and rising Bank of England interest rates, limiting Healey's room for maneuver in his first budget next month.