Lower-than-expected deficit offers limited fiscal breathing room as debt costs remain elevated
The UK government borrowed less than anticipated in December after a surge in tax receipts, easing short-term pressure on the public finances but leaving overall debt at historically high levels.
According to the Office for National Statistics (ONS), public sector net borrowing – the gap between government spending and income – stood at £11.6 billion in December, down from £18.7 billion in the same month a year earlier. Economists surveyed by Reuters had expected a figure of about £13 billion.
For mortgage market participants, the figures will be monitored for their potential influence on gilt yields, interest rate expectations and, in turn, funding and swap costs that feed through to pricing.
The ONS said the improvement was driven mainly by higher tax revenues, reflecting last April’s increase in national insurance contributions (NICs) and stronger wage growth. Government receipts from income tax, NICs and other sources rose by £7.7 billion year on year to £94 billion, the highest level recorded in any December. That increase exceeded a £3.2 billion rise in public spending over the same period, taking total expenditure to £92.9 billion.
Public sector net borrowing excluding public sector banks was £11.6 billion in December 2025.
— Office for National Statistics (ONS) (@ONS) January 22, 2026
This was £7.1 billion less than in December 2024 but higher than in December 2023.
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“Borrowing in December was substantially down on the same month in 2024, as a result of receipts being up strongly on last year, whereas spending is only modestly higher,” said Tom Davies, senior statistician at the Office for National Statistics. “However, across the first nine months of the financial year as a whole, borrowing was fractionally lower than in the same period in 2024.”
From April to December, cumulative borrowing reached £140.4 billion, around £300 million lower than in the corresponding period a year earlier. Despite this marginal fall, the total remained the third-highest nine-month borrowing figure since ONS records began in 1993. Earlier months of the financial year were also revised, with borrowing reduced by a combined £3.5 billion after an upward revision of £1.9 billion in corporation tax receipts.
According to Danni Hewson (pictured right), head of financial analysis at investment platform AJ Bell, the significant fall in government borrowing in December will be a relief for the Treasury, especially since January’s numbers are likely to look even better with a surge in self-assessment receipts expected.
“Spending nudged up compared with the previous year, primarily because of increases to benefit payments and pay rises, but that was more than offset by an increase in the cash coming into the government’s coffers,” Hewson noted. “Frozen tax thresholds coupled with chunky pay rises mean people have been paying more tax, and Rachel Reeves’ changes to employer National Insurance also helped total receipts shoot up by £7.7 billion.
“But zoom out to take in the full financial year to date and the picture isn’t quite as rosy, with total borrowing to the end of December at levels only seen twice before. The deficit is reducing, but the pace of the reduction is glacially slow. With further increases to benefit payments on the way in April, the pressure on the public purse is still uncomfortable.
“Stabilisation is one thing and if cost pressures can be kept in check, the path forward looks less boggy than what’s behind us. But inflation is still sticky, interest on all that debt is up on the same period last year and growth remains sluggish.”
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