Sunak government in a tight spot as UK budget deficit overshoots

London — Britain’s government borrowed more than expected in the 2023/24 financial year, data showed on Tuesday, which is bad news for Prime Minister Rishi Sunak’s hopes to woo back voters with tax cuts ahead of a national election.

The budget deficit for 2023/24 totalled £120.7bn ($149bn), equivalent to 4.4% of economic output, the Office for National Statistics said.

The Office for Budget Responsibility last month forecast a deficit of £114.1bn, or 4.2% of economic output.

The figures pose a headache for finance minister Jeremy Hunt, whose Conservative Party trails the opposition Labour Party by a wide margin in opinion polls.

Last month, Hunt announced tax cuts in a budget that met the government’s own fiscal rules by the slimmest of margins.

Tuesday’s figures meant Hunt was in danger of running out of headroom altogether, said Rob Wood, chief UK economist at consultancy Pantheon Macroeconomics.

“We expect the chancellor to cut taxes again before a likely October or November general election despite borrowing overshooting his forecasts,” Wood said, adding that Hunt could pencil in “unrealistically weak public spending” to create more headroom.

“We suspect whoever the next government is will end up pushing through at least some tax rises to balance the books.”

In response to Tuesday’s data, Britain’s debt agency ramped up its planned sales of gilts for the current 2024/25 year by £12.4bn to £277.7bn. The Debt Management Office said the increase reflected the fact that central government’s net cash requirement for 2023/24 came in almost £10bn higher than forecast.

In March alone, public sector net borrowing, excluding state-controlled banks, was £11.94bn ($14.74bn).

March’s borrowing, the last of the 2023/24 financial year, was above the median forecast of £10.2bn in a Reuters poll of economists.

Despite the budget deficit for 2023/24 coming in higher than forecast, it was £7.6bn less than in 2022/23, when the state subsidised household soaring energy bills, and double-digit inflation led to a surge in debt interest payments.

The finance ministry said Tuesday’s figures showed it was important to stick to the plan to reduce Britain’s debt.

Reuters