UK borrowing higher than forecast in October
Newsflash (yes, another one): The UK government borrowed more than forecast last month to balance the books, highlighting the fiscal challenge facing Rachel Reeves in next month’s budget.
The Office for National Statistics has reported that the UK borrowed £17.4bn in October, to cover the shortfall between tax income and spending.
City economists had expected borrowing to drop to £15bn, down from the £20bn borrowed in September.
Significantly, this is £3bn more than the £14.4bn forecast in March 2025 by the Office for Budget Responsibility.
So far this year, the UK government has borrowed £116.8bn; £9.0bn more than in the same seven-month period of 2024.
That’s the second-highest April to October borrowing (not adjusted for inflation) on record, after that of 2020.
Key events
Capital Economics: A bleak backdrop for the Budget
This morning’s economic data paints “a pretty grim picture”, creating a bleak backdrop for the Budget, says Ruth Gregory, deputy chief UK economist at Capital Economics.
On the public finances, Gregory explains:
The £17.4bn of public sector net borrowing in October was once again higher than the consensus forecast of £15.1bn and the OBR’s forecast of £14.4bn. This means that after seven months of the 2025/26 financial year, public sector net borrowing is a huge £9.9bn higher than the OBR forecast at the Spring Statement in March. The overshoot in the Chancellor’s chosen fiscal mandate of the current budget is even greater, at £15.1bn.
Higher local authority spending, which is particularly subject to revision, has been a key source of the overshoot. But the slow growth of tax receipts has played a part too, which has been surprising given that high inflation has boosted consumer spending in nominal terms.
And on retail sales, the 1.1% month-on-month-fall in retail sales volumes in October “isn’t quite as bad as it looks”, and could be reversed in November if consumers were indeed holding back spending ahead of Black Friday
But, she adds:
The risk is that the fourth quarter isn’t a golden one for retailers and that higher taxes in the Budget restrain retail spending over the crucial festive period and going into next year.
Quilter Cheviot: Reeves is running out of room
Today’s borrowing figures compound the woes for Chancellor Rachel Reeves as she seeks to plug gaps in the public finances and find extra to rebuild her headroom for future shocks, says Richard Carter, head of fixed interest research at Quilter Cheviot:
Carter points out that borrowing so far this financial year is £9bn higher than a year before, which he says highlights the extent to which the government has increased borrowing since coming to power last year.
“Markets and investors are craving some sort of fiscal responsibility from the UK government, but with next week expected to bring yet more tax rises and potential unintended consequences, one does begin to question how long this current approach can last. Without a shift in the fiscal rules again, the UK economy is bound between tax rises, spending cuts or a combination of the two. So far this government has preferred to use the lever of tax rises and found its backbenchers have jammed the spending cuts one. Economic growth is subsequently difficult to achieve and shows no sign of taking off again any time soon.
“Gilt yields have been climbing higher once again in recent weeks, and the UK still has a risk premium attached to it compared to peers. Ultimately, today’s borrowing figures suggest Reeves is running out of room, and potentially time, to kick start the economy and get it growing once again. While rate cuts will help, inflation remains sticky and as such the Bank of England may not act as aggressively as the government would like. The ball is in Reeves’ court, but her next move will prove crucial next week.”
Borrowing lower than in October 2024
At £17.4bn, UK government borrowing in October was £1.8bn less than October 2024 (a smaller fall than expected).
This fall was due to taxes rising faster than spending.
ONS chief economist Grant Fitzner explains:
“Borrowing this October was down on the same month last year, although it was still the third-highest October figure on record in cash terms.
“While spending on public services and benefits were both up on October last year, this was more than offset by increased receipts from taxes and National Insurance contributions.”
UK borrowing higher than forecast in October
Newsflash (yes, another one): The UK government borrowed more than forecast last month to balance the books, highlighting the fiscal challenge facing Rachel Reeves in next month’s budget.
The Office for National Statistics has reported that the UK borrowed £17.4bn in October, to cover the shortfall between tax income and spending.
City economists had expected borrowing to drop to £15bn, down from the £20bn borrowed in September.
Significantly, this is £3bn more than the £14.4bn forecast in March 2025 by the Office for Budget Responsibility.
So far this year, the UK government has borrowed £116.8bn; £9.0bn more than in the same seven-month period of 2024.
That’s the second-highest April to October borrowing (not adjusted for inflation) on record, after that of 2020.
GB retail sales fall for first time since May
Newsflash: Retail sales fell across Great Britain last month, for the first time since May.
The Office for National Statistics has reported that retail sales volumes are estimated to have fallen by 1.1% in October 2025.
The ONS says:
Supermarkets, clothing, and mail order retailers fell in October 2025, which some retailers attributed to consumers delaying their spending in the lead up to Black Friday.
That follows a 0.7% rise in September (revised up from a 0.5% rise) and a 0.5% increase in August (revised down from a 0.6% rise)
UK energy cap to rise by 0.2% in January
Newsflash: Hopes for a small fall in energy bills across Great Britain have been dashed.
Regulator Ofgem has just announced that from 1 January to 31 March 2026 there will be a small monthly increase of 28 pence on the price of energy for a typical household who use electricity and gas and pay by Direct Debit.
The change means the average dual fuel energy bill will increase to £1,758 per year in January to March, up from £1755 in the current quarter, an increase of 0.2%.
As flagged in the introduction, forecasters had expected a 1% drop in the cap which would have saved a typical household £22 per year.
Ofgem says:
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Compared to the level between January and March 2025, it is 1% or £20 lower.
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Year on year when adjusted for inflation the new cap is 2% or £37 lower than the same period in 2025.
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The annual cost for people who use electricity and gas and pay by Direct Debit would be £1,758 per year (0.2%).
AI bubble fears return as Wall Street falls back from short-lived rally
There may be jitters in the European markets today, after losses on Wall Street last night.
Fears of a growing bubble around the artificial intelligence frenzy resurfaced yesterday, less than 24 hours after strong results from chipmaker Nvidia sparked a rally.
Wall Street initially rose after Nvidia, the world’s largest public company, reassured investors of strong demand for its advanced data center chips. But the relief dissipated, and technology stocks at the heart of the AI boom came under pressure.
The benchmark S&P 500 closed down 1.6%, and the Dow Jones industrial average closed down 0.8% in New York. The tech-focused Nasdaq Composite closed down 2.2%.
The futures market indicates we’ll see losses in London when trading begins at 8am.
Introduction: Public finances, retail sales and price cap coming up
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
We’re about to get the final healthcheck on the UK economy ahead of next week’s budget.
The latest public finances are expected to show the UK borrowed around £15bn in October to cover the shortfall between tax receipts and spending. Economists will scrutinise the data to see whether the government has fallen further off course against the forecasts set in March.
New retail sales data is also due, and show whether consumers were hit by pre-budget caution. The City expects retail sales were flat month-on-month in October, but up 1.5% compared with a year ago.
And in a flurry of early morning news, energy regulator Ofgem is about to set the latest price cap on bills across Great Britain.
Households may get a little respite from rising costs – the cap is expected to drop by around 1% from January due to lower wholesale gas prices. That would lower the average dual-fuel bill for a typical household to £1,733 a year, down £22, forecaster Cornwall Insight has said.
The agenda
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7am GMT: UK public finances for October
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7am GMT: UK retail sales for October
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7am GMT: UK energy price cap for January-March 2026 to be set
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8am GMT: Eurozone flash PMI economic data
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9:30am GMT: UK flash PMI economic data
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3.40pm GMT: Bank of England chief economistHuw Pill panellist in Zurich on ‘the future of the world’s leading currencies’