The Editor’s Digest is being offered for free, curated by Roula Khalaf, Editor of the Financial Times, who shares her preferred stories in this weekly newsletter.
According to official statistics, UK government borrowing significantly exceeded expectations in February, highlighting the challenges faced by Chancellor Rachel Reeves as she prepares for her Spring Statement. The Office for National Statistics reported that the gap between government income and expenditure was £10.7 billion last month, surpassing the Office for Budget Responsibility’s forecast of £6.5 billion and similar projections by economists in a Reuters survey. For the financial year up to February, the deficit stood at £132.2 billion, which is approximately £14.7 billion more than the same period in the previous year.
Chancellor Reeves is preparing a Spring Statement that will involve further constraints on government spending as part of her efforts to maintain balanced public finances. She has committed to balancing the current budget, which excludes government investments, by the fiscal year 2029-30. However, the fragile state of the economy and public finances is expected to prompt the OBR to suggest the necessity of continued spending restraint. The government has revealed plans to achieve welfare savings of £5 billion annually and is anticipated to announce additional reductions in departmental expenditures soon.
The Office for National Statistics estimated that the ratio of net government debt to GDP at the end of February was provisionally at 95.5 percent, a slight increase from the previous year.
Darren Jones, the Chief Secretary to the Treasury, expressed that efforts are underway to refocus the public sector on key missions. For the first time in 17 years, there is a thorough review of taxpayer spending to ensure it aligns with securing Britain’s future through the Plan for Change. Central to this mission are sound public finances, adhering to the government’s stringent fiscal rules.
Chancellor Reeves, after exiting her first Budget last October with a £9.9 billion buffer against her current deficit rule, has seen this margin erased due to rising government borrowing costs and stagnant growth. She will need to present plans to rebuild this buffer to reassure financial markets of her ability to manage the public finances effectively.
Reeves has emphasized that the upcoming announcement will not be a significant fiscal event, indicating that tax changes are not being considered at this time. However, economists warn that pressures such as the need for increased defense spending and public service repairs might necessitate additional revenue-raising measures within the current parliament. James Smith, an economist at ING, remarked that cost-cutting has its limits and, without an unexpected boost to UK growth this summer, further tax hikes in the autumn seem likely.
