Government borrows almost £15bn more than expected

The UK government borrowed almost £15bn more than forecast in the last financial year, according to official figures highlighting contributions from inflation-related costs, including pay awards.

The Office for National Statistics (ONS) reported that borrowing - the difference between total public sector spending and income - over the 12 months to the end of March came in at £151.9bn. That provisional sum was £20.7bn more than in the same twelve-month period a year earlier and £14.6bn more than the £137.3bn forecast by the Office for Budget Responsibility (OBR) at the spring statement just a month ago, the body said.

Money latest: Are Treasury-backed savings now the best place for your cash? It added that the figure represented 5.3% of the UK's gross domestic product (GDP), 0.5 percentage points more than in 2023/24. It was partly driven by £16.4bn of borrowing in March - the third-highest March borrowing since monthly records began in 1993.

The provisional data left public sector net debt at 95.8% of GDP at the end of March. That is 0.2 percentage points higher than at the end of March 2024.

Higher borrowing is partly a consequence of government investment and spending decisions announced in the chancellor's autumn budget last year. But it is also a result of higher costs to service government debt, with the ONS data showing a bill of £4.3bn for March alone.

Elevated bond yields, which reflect a higher risk premium demanded by investors in return for holding UK government debt, are a result of greater turmoil in the global economy and unease over domestically generated inflation and weak growth at a time of continued strain for the public purse. Rachel Reeves was forced to use her spring statement in March to restore a £10bn buffer to the public finances to avoid breaking her own fiscal rules.

ONS chief economist Grant Fitzner said of the data: "Our initial estimates suggest public sector borrowing rose almost £21bn in the financial year just ended as, despite a substantial boost in income, expenditure rose by more, largely due to inflation-related costs, including higher pay and benefit increases. "At the end of the financial year, debt remained close to the annual value of the output of the economy, at levels last seen in the early 1960s." The government's efforts to bring down costs include a crackdown on the welfare bill and a renewed focus on securing growth in the economy.

However, business groups say the chancellor's decision to impose an additional tax burden on employment from this month, mainly through higher minimum wage and employer national insurance contributions, will backfire and harm both employment and investment. Household spending power is also set to face further strain as inflation is tipped to rise beyond 3% due to a slew of rising costs in the economy, including bills for energy and water.

Read more from Sky News:Stock markets rally as Trump rows back on Fed and China threatsMusk says his time working for Trump to 'drop significantly' The impact of the US trade war is also starting to be felt. A closely watched index of activity in the service and manufacturing sectors fell into negative territory, with its weakest reading since November 2022.

The survey of purchasing managers by S&P Global found export orders falling at their fastest pace since early 2020. AJ Bell head of financial analysis, Danni Hewson, said of the data: "Many of the challenges facing the UK economy are beyond the chancellor's control and she is currently in Washington trying to strike a deal with the US administration on tariffs that will cushion the UK without selling off the family silver.

"One of the big questions is how those changes to employer National Insurance will impact next month's numbers, especially with inflation linked benefits and the state pension rising at the same time. "Many people will now be eyeing that headroom created back in March which had always seemed rather insubstantial, and wondering how much will be left by the autumn." Responding to the figures, Chief Secretary to the Treasury Darren Jones said the government would always be responsible when it came to the public finances.

He added: "We are laser-focused on making sure taxpayer money is delivering our Plan for Change missions to put more money in people's pockets, rebuild the NHS and strengthen our borders." But shadow chancellor Mel Stride said: "By fiddling the fiscal rules, increasing borrowing by £30bn a year and piling up debt - these figures are alarming but not surprising.".