Government Borrowing Drops to £11.6bn in December

Published: 22 January 2026. The English Chronicle Desk. The English Chronicle Online.

The UK government borrowing fell sharply in December, marking a notable improvement compared with last year. Public sector net borrowing, which measures the gap between government spending and income, reached £11.6bn last month, considerably lower than the £18.7bn recorded in December 2024. Analysts had anticipated borrowing of approximately £13bn, highlighting that the government managed to outperform expectations due to stronger receipts and moderated spending growth. These figures illustrate the impact of Chancellor Rachel Reeves’s fiscal strategy and her commitment to reducing borrowing while maintaining investment in essential public services.

According to the Office for National Statistics (ONS), borrowing in the financial year so far, up to December, stands at £140.4bn, slightly below last year’s £140.7bn. Revisions to earlier monthly figures lowered borrowing by an additional £3.5bn, reflecting the robust revenue collection during the past year. Tom Davies, a senior ONS statistician, noted that rising receipts, including income tax and national insurance, contributed significantly to the decline, while government spending increased only modestly. This combination created a favourable environment for borrowing to fall below market expectations.

Interest costs continue to dominate government borrowing, with £9.1bn of December’s £11.6bn dedicated to servicing debt. The high cost of debt has long been a concern for policymakers, as approximately £1 in every £10 spent by the government goes toward interest payments. Reeves has highlighted that reducing this burden allows more resources for essential public services such as healthcare, policing, and education, while also creating room for infrastructure investment.

Economists have welcomed the latest borrowing data, noting that the decline is likely to continue in the coming months. Dennis Tatarkov, senior economist at KPMG UK, stated that anticipated interest rate cuts and the Bank of England’s winding down of quantitative tightening could substantially reduce the government’s borrowing costs. This would provide further fiscal flexibility, potentially allowing increased public spending without compromising fiscal discipline.

The chancellor’s strategy includes tax rises announced in her autumn budget, which raised £26bn in additional revenue. These measures, combined with strict adherence to a fiscal rule requiring day-to-day spending to be funded by taxes, aim to stabilise public finances while supporting economic growth. The Office for Budget Responsibility (OBR) estimated that these tax measures created £22bn of spending headroom, reinforcing the government’s commitment to responsible borrowing.

The OBR projects that public sector net borrowing for the 2025-26 financial year will decline to £138bn, down from £152.6bn the previous year, reducing the deficit to 4.5% of GDP from 5.2% in 2024-25. Over the next decade, borrowing is expected to steadily decrease, reaching £67bn by 2031. James Murray, chief secretary to the Treasury, emphasised that the UK is on track to achieve the largest borrowing reduction among G7 countries, reflecting the effectiveness of current fiscal measures.

Murray highlighted that the government’s approach is focused on balancing economic stability with public service efficiency. By targeting borrowing reductions, eliminating waste in public spending, and ensuring taxpayers’ money delivers maximum value, the government seeks to maintain a stable economic outlook. He stressed that reducing debt interest payments can free resources for frontline services, ultimately benefiting citizens while supporting sustainable growth.

Fiscal experts have also noted that the improved borrowing figures are a positive signal to financial markets. Lower borrowing reduces the need for government debt issuance, which can ease pressure on gilt yields and borrowing costs. This could encourage investment and improve confidence in the UK’s economic management. The Treasury’s long-term strategy combines prudent borrowing, fiscal discipline, and targeted public spending, ensuring that short-term gains are complemented by sustainable economic health.

Analysts caution, however, that continued vigilance is necessary. Unexpected economic shocks, inflation fluctuations, or slower revenue growth could impact borrowing in the months ahead. The government remains committed to monitoring financial trends and adjusting policies as necessary to maintain fiscal balance. Reeves has reiterated that reducing government borrowing is central to her economic vision, aiming to provide fiscal stability while supporting public sector growth.

The ONS figures demonstrate that careful management of revenues and expenditures has tangible benefits. Strong tax receipts, moderated spending growth, and strategic financial planning collectively contribute to a decline in borrowing, demonstrating the effectiveness of the chancellor’s fiscal approach. These measures align with the broader goal of reducing debt interest payments and freeing funds for investment in public services.

With borrowing now below market expectations, the UK government continues to focus on implementing its medium-term fiscal strategy. This includes carefully balancing spending priorities, maintaining debt sustainability, and fostering conditions for economic growth. By prioritising responsible borrowing and strategic tax measures, policymakers aim to create a stable and predictable financial environment that benefits the UK economy and its citizens alike.

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