Rachel Reeves could be forced to raise taxes or announce deeper cuts to public spending after figures revealed UK borrowing overshot official forecasts by almost £15bn in the last financial year.
With the British economy coming under mounting strain amid Donald Trump’s escalating trade war, the Office for National Statistics (ONS) said borrowing in the financial year ending in March was £151.9bn, more than £20bn higher than in the previous financial year.
After a larger-than-anticipated rise in borrowing in March, the figure was £14.6bn more than the Office for Budget Responsibility (OBR) had predicted less than a month ago in forecasts published alongside the chancellor’s spring statement.
In a setback for the government, economists warned that Reeves could be forced to put up taxes or cut public spending further at the autumn budget if she wanted to maintain her self-imposed fiscal rules.
“Public borrowing was overshooting the OBR’s forecast even before the influence from the tariff chaos is felt,” said Ruth Gregory, the deputy chief UK 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.”
It comes less than a month after the chancellor announced cuts to sickness and disability benefits and reductions in public spending to rebuild £9.9bn of headroom against her main fiscal target.
Reeves had faced criticism at the time for leaving herself limited space amid mounting pressure to raise defence spending and to meet Labour’s promise to mend public services, while the outlook has deteriorated further since.
“A fiscal rethink across the upcoming spending review and autumn budget looks increasingly likely,” said Matt Swannell, the chief economic adviser to the EY Item Club.
“Even before recent tariff announcements, we viewed the spring statement as a stopgap that left a lot of the big fiscal questions unanswered. At its next fiscal event in the autumn, the government will likely have to raise taxes or bend its fiscal rules if it wishes to increase defence spending further or help some departments that face very challenging budgets.”
Britain has faced a rise in debt interest payments since Trump’s November election victory, amid an increase in borrowing costs for countries around the world as investors fret over the impact of the US president’s tariff policies.
The International Monetary Fund this week said Trump had unleashed a “major negative shock” into the world economy since his “liberation day” announcement. Seeking a US-UK trade deal to soften the blow, Reeves is due to speak to her international counterparts at the fund’s annual spring meetings in Washington on Wednesday.
The OBR warned last month that the worst-case scenario could reduce UK gross domestic product (GDP) by as much as 1% and erase Reeves’s headroom, amid a rapidly shifting global economic backdrop.
Separate figures on Wednesday showed business activity fell in April at the fastest rate since November 2022 as Trump’s trade wars threaten to push the British economy into a renewed downturn.
The S&P Global composite purchasing managers’ index, a closely watched barometer of the private sector economy, slid to 48.2 in April from 51.5 in March, on a scale where the 50 mark separates growth from contraction.
The latest government finances snapshot showed borrowing in March alone was £16.4bn, slightly higher than economists’ forecasts for a reading of £16bn.
Grant Fitzner, the ONS chief economist, said that despite a “substantial boost in income” from taxation in recent months, government borrowing rose by more than receipts in March, “largely due to inflation-related costs, including higher pay and benefit increases”.
Mel Stride, the shadow chancellor, said the “alarming” figures showed the government was allowing borrowing to rise and debt to pile up.
Public sector net debt, the sum of every annual borrowing figure, was estimated by the ONS at 95.8% of GDP, one of its highest levels since the 1960s.
Acknowledging the large overshoot on its forecasts, the OBR cautioned that the borrowing figure was provisional and likely to be revised. However, it said the difference was largely explained by lower tax receipts and higher borrowing by local authorities and central government.
Darren Jones, the chief secretary to the Treasury, said the government remained committed to the chancellor’s “non-negotiable” fiscal rules. Saying that he was going through every line of public spending to “tear out waste” before the spending review in June, he added: “We are laser-focused on making sure taxpayer money is delivering our plan for change missions to put more money in people’s pockets, rebuild the NHS and strengthen our borders.”
