Government borrowing in the past financial year was the third highest on record, the Office for National Statistics revealed on Wednesday.
Public sector net borrowing excluding public sector banks was £151.9 billion, or 5.3% of GDP, for the 2024/2025 financial year.
This was £20.7 billion, or 0.5 percentage points, more than in the previous year, and was a sizeable overshoot of the £137.3 billion forecast by the Office for Budget Responsibility for the Spring Statement
Chancellor Rachel Reeves' current budget deficit – borrowing to fund day-to-day public sector activities – in the year ending March 2025 was provisionally estimated at £74.6 billion. This was £12.6 billion more than the previous year and £13.9 billion more than the £60.7 billion forecast by the OBR.
Public sector net debt excluding public sector banks was 95.8% of GDP at the end of March 2025, 0.2 percentage points more than at the end of March 2024.
These levels of public borrowing were last seen in the early 1960s, said ONS chief economist Grant Fitzner.
“Our initial estimates suggest public sector borrowing rose almost £21 billion in the financial year just ended as, despite a substantial boost in income, expenditure rose by more, largely due to inflation-related costs, including higher pay and benefit increases," Fitzner said.
Difficult reading for Chancellor Rachel Reeves
With borrowing estimated to have overshot the OBR's Spring Statement forecast by £14.6 billion in the year to March, "the fiscal outlook is only getting more challenging for the government", said Matt Swannell, chief economic advisor to the EY ITEM Club.
"US tariffs will likely hinder growth this year and next, which will see most of the headroom against the fiscal rules used up. Against this difficult backdrop, a fiscal re-think appears increasingly likely."
With public finances having ended the year on a poor footing, recent US tariffs "are only going to make the UK fiscal arithmetic more challenging," said Swannell.
"The Chancellor’s Spring Statement only left a slim margin for error against the fiscal rules. Most of this will likely be used up as the combination of reduced access to a major export market, a weaker global economy and lingering uncertainty is set to hold back growth. Meanwhile, the rise in government bond yields since the Spring Statement will, if sustained, make it more costly for the government to service its debt."
A "fiscal re-think" across the upcoming Spending Review and Autumn Budget looks "increasingly likely", Swanell added, predicting taxes may be raised or the fiscal rules given a tweak if Reeves and PM Kier Starmer wish to increase defence spending further or help some departments that face very challenging budgets.
Elliott Jordan-Doak, economist at Pantheon Macroeconomics, predicted that "both taxes and borrowing will need to be raised" as global trade and geopolitical uncertainties are likely to to make the Chancellor’s life even more difficult.
Pantheon had already expected that the government would need to increase defence spending beyond its recent commitment of 2.5% of GDP– to at least 3.0% of GDP by 2027 – with a mix of borrowing and tax increases to take the strain.
"But President Trump’s tariffs now mean a likely hit to GDP growth this year and next, which will further weigh on the public finances," he said, though the US President has started to row back on his tough stance.
The bond market did not react much to the higher-than-expected March borrowing figure, noted market analyst Kathleen Brooks at TXB.
But there is extra pressure on the Chancellor and it "also ups the stakes for her to strike a trade deal with the US and boost trading relations with Europe at the same time", Brooks said, with Reeves in Washington for the IMF spring meetings.
"For now, the UK’s borrowing bonanza is not attracting the bond vigilantes," she added, with 10-year UK gilt yields in fact falling slightly on Wednesday.