Britain ran a bigger-than-expected budget deficit in December, swelled by debt interest costs and a one-off purchase of military homes, according to official data that underlined the fiscal pressure faced by finance minister Rachel Reeves.
Public sector net borrowing was 17.8 billion pounds ($21.93 billion) in December, more than 10 billion pounds higher than a year earlier, the Office for National Statistics said on Wednesday.
Economists polled by Reuters had a median forecast of 14.1 billion pounds for headline public sector net borrowing.
Since her Oct. 30 budget that raised borrowing and increased tax on employers to help restore public services and investment, economic and financial data has largely turned against Reeves, adding to the likelihood that she will need to do more to meet her fiscal rules.
Reeves, speaking with Bloomberg on the sidelines of the World Economic Forum's annual meeting in Davos, Switzerland, said Britain's public finances were now in order but she would continue to take decisions to meet her fiscal rules.
Earlier this month, a sharp sell-off in British government bonds, driven to a large degree by shifts in U.S. interest rate expectations, forced Reeves to say she would act to meet her fiscal rules.
Those include the balancing of day-to-day spending by revenues by the end of the decade and for public sector net financial liabilities to decline as a proportion of gross domestic product.
However, market borrowing costs have fallen over the last week and as of Tuesday, British gilts were the third-best performing bonds among the Group of Seven countries this year.
Alex Kerr, UK economist at Capital Economics consultancy, said December's overshoot in borrowing was another disappointment for Reeves against a backdrop of slowing economic growth and high interest rates.
"That said, most of the overshoot was because of a one-off payment and components that are heavily revised so the figures may not be as bad as they first appear," he added.
The ONS said the government racked up an 8.3 billion-pound debt interest bill in December, the third-highest December total on record. A 1.7 billion-pound payment for the repurchase of military dwellings added to borrowing.
Britain's government has borrowed 129.9 billion pounds over the first nine months of the 2024/25 financial year, the ONS said - more than the Office for Budget Responsibility's forecast for 125.9 billion pounds at this point of the year.
Public sector net financial liabilities rose to 84.5% of GDP in December from 84.0% in November.
($1 = 0.8118 pounds)
(Reporting by Andy Bruce; editing by William Schomberg and Tomasz Janowski)
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