The UK government's borrowing unexpectedly surged to £17.8bn last month, increasing pressure on Rachel Reeves to plan budget cuts ahead of the summer spending review.
The Treasury's independent economic forecaster said the rise was mainly due to local authorities borrowing an extra £4.1bn, in contrast to central government departments sticking to their borrowing limits.
The monthly total was about a quarter higher than the City had expected, an increase of £10.1 billion on the same month last year, and the highest borrowing amount for December in four years.
Economists polled by Reuters had forecast net public sector borrowing (excluding public sector banks) at 14.1 billion pounds in December, up from 11.25 billion pounds in November.
The Office for National Statistics (ONS) said central and local government spending on services, benefits and debt interest payments had increased.
Capital Economics said the latest figures show Mr. Reeves' financial cushion has been significantly reduced. The Chancellor granted a £9.9bn buffer over Parliament in the autumn budget, but the consultancy said the latest figures could reduce it to around £2bn.
“Coupled with the economic downturn, the chancellor has indicated that he may need to raise taxes and cut spending in his next fiscal report on March 26 to comply with fiscal rules,” the newspaper said.
The Treasury Department signaled it was considering implementing spending cuts, excluding increases in borrowing and taxes, so as not to violate Mr. Reeves' fiscal rule that day-to-day spending is matched by tax revenue.
Whitehall department heads are preparing to overhaul their budgets and cut costs ahead of a three-year spending review expected to be agreed by the Treasury in June.
Slower growth in the past six months than expected in the Budget and rising debt financing costs due to rising government debt rates are also expected to add to the spending squeeze.
The Office for Budget Responsibility (OBR), the Treasury's independent forecasting agency, named local authorities that borrowed more in December than authorities and cities had predicted.
On top of the extra £4.1bn borrowed in December, councils have added to their debt piles by around £50bn over the past decade, with some using the money to buy shopping centers and other investment assets. In some cases, they are borrowing to survive financially.
Analysts said the purchase of military housing from private equity firm Terra Firma for around £6bn was another reason for last month's rise in borrowings. An additional £1.7bn was required for the MoD to fund the deal.
The ONS data covers a period when UK borrowing costs were rising, but before this month's turmoil in global bond markets caused government debt yields (effectively interest rates) to soar. It is targeted.
Britain's 30-year bond yield rose last week to its highest level since 1998, but fell after data showed inflation fell to a lower-than-expected 2.5% in December. .
Uncertainty prompted currency traders to push the pound down to a 14-month low of $1.22 in early January, before it edged up 2 cents last week. In September last year, the pound was worth $1.34.
Debt repayments in December were £2bn lower than the OBR had predicted for April to December. However, higher interest costs in January could reverse this savings.
Treasury Secretary Darren Jones said: That's why our fiscal rules are non-negotiable and why we keep a firm grip on our finances. ”
Financial results will be announced on March 26th, and a budget proposal will be announced in the fall. The OBR will use both events to check the health of the government's budget targets.
Mr Jones said the government was “examining every area of government spending for the first time in 17 years” to “eradicate waste and ensure taxpayers' money is spent productively, helping to deliver our transformation plans”. said.
