Tax rises forecast after UK borrowing jumps to £20.7bn; AstraZeneca announces $50bn US investment – business live | Business

Despite public borrowing overshooting official forecasts by £3.6bn in June, to over £20bn, borrowing is still in line with the OBR’s forecasts after the first three months of the fiscal year, points out Alex Kerr, UK economist at Capital Economics.

But… Kerr fears things will probably get worse for the Chancellor, forcing her to raise between £15-25bn at the Budget later this year, probably mostly through higher taxes.

Kerr told clients:

Admittedly, the better-than-expected start to the fiscal year means that borrowing is still on track to meet the OBR’s existing forecasts after the first three months of the 2025/26 fiscal year.

But the government’s u-turns on spending cuts and potential upward revisions to the OBR’s borrowing forecasts means the Chancellor will probably need to raise £15-25bn at the Autumn Budget to maintain the £9.9bn of headroom against her fiscal mandate.

And given that she is struggling to stick to existing spending plans and we doubt the gilt market will tolerate significant increases in borrowing, she will probably have to raise taxes instead.

Dennis Tatarkov, senior economist at KPMG UK, has warned that June’s higher borrowing piles more pressure on public finances, which could mean spending cuts or tax rises.

Tatarkov explains:

“Higher than expected interest payments as well as weaker revenues have pushed borrowing above the OBR’s projection for the second month in a row.

“Furthermore, the longer-term outlook for public finances remains difficult. Recent U-turns on welfare and persistent growth headwinds could open a gap against fiscal targets, which could require further tax rises or spending cuts in the Autumn Budget. To the extent that ongoing deficits point to lingering budgetary pressures, we would expect the OBR to acknowledge these at the next fiscal event.”

Richard Carter, head of fixed interest research at Quilter Cheviot, says today’s UK public sector finances “highlight the parlous state of the government’s fiscal position”, adding:

“Recent events have shown how hard it is for the government to bring spending down. Welfare reform was heavily watered down, while winter fuel payments have been reinstated for millions. As we approach the summer recess this is all going to result in additional speculation of what tax rises will be coming down the line given the need to plug the holes. Bond markets are craving some fiscal discipline, so without any spending cuts, taxes will have to rise.

“This is all going to negatively impact the UK’s growth position. Labour continually speaks about achieving economic growth but if taxes do need to keep rising to cater for an ever increasing debt, that growth is going to prove elusive.”