UK Government faces mounting fiscal challenges

The UK government's borrowing for the 2024–25 fiscal year has significantly exceeded expectations, intensifying concerns over the nation's fiscal health and economic outlook.​

According to the Office for National Statistics (ONS), public sector net borrowing reached £151.9 billion in the year ending March 2025, surpassing the Office for Budget Responsibility's (OBR) forecast by £14.6 billion and marking a £20.7 billion increase from the previous year. ​

In March alone, borrowing stood at £16.4 billion, the third-highest monthly figure since records began in 1993. ​

The surge in borrowing is attributed to inflation-driven expenditures, notably higher public sector wages and increased welfare payments. Despite a rise in tax revenues, these costs have outpaced income, pushing public sector debt to £2.64 trillion, or 95.8% of GDP—a level not seen since the 1960s. 

Chancellor Rachel Reeves faces mounting pressure as the International Monetary Fund (IMF) downgraded the UK's 2025 economic growth forecast from 1.6% to 1.1%. The IMF cited global trade tensions, particularly the impact of U.S. tariffs on UK exports, as a significant factor. President Donald Trump's administration has imposed a 10% blanket tariff on all imports, with specific levies of 25% on steel and automobiles, affecting key UK industries.

In response, Chancellor Reeves is set to engage in critical discussions with U.S. Treasury Secretary Scott Bessent during the International Monetary Fund's spring meetings in Washington, D.C. The talks aim to negotiate a trade deal to mitigate the adverse effects of the tariffs and stabilize the UK's economic trajectory. 

Economists warn that without decisive action, the UK may face further fiscal tightening. The OBR has highlighted the government's limited fiscal headroom, estimating it at just £9.9 billion. This constraint may necessitate additional tax hikes or spending cuts in the upcoming autumn budget to adhere to fiscal rules and maintain economic stability.