Reeves optimistic despite surprise rise in UK borrowing

British Chancellor of the Exchequer Rachel Reeves has expressed an "optimistic" view of the UK's economic outlook, despite borrowing figures for December exceeding expectations and putting pressure on government finances. Official data showed that last month's borrowing, the difference between spending and tax revenue, was £17.8 billion, the highest December figure in four years. Spending on public services, welfare, and debt interest payments all increased compared to the same period last year, while growth in tax revenue was offset by cuts to national insurance implemented by the previous government.

The recent rise in borrowing costs poses a threat to the government's economic plans. Reeves is facing pressure after data last week showed the UK economy stagnating. The government has stated that economic growth is its top priority for improving living standards, but concerns about the state of the economy have fueled speculation that Reeves may cut public service spending. Despite environmental concerns, Reeves has reiterated her commitment to achieving economic growth "faster and further" and has expressed support for expanding Heathrow and Gatwick airports to stimulate the economy.

Speaking to the BBC during the World Economic Forum in Davos, Switzerland, Reeves said, "We will look at all the plans that can bring infrastructure and investment to the UK." She added, "The answer can't always be 'no' when it comes to infrastructure investment decisions, and this government's answer is 'yes'." It is understood that investors who own these airports were also present at the forum. The Treasury is considering whether to support a third runway at Heathrow and approve a second runway at Gatwick, but these projects are not expected to start in the short term.

Meanwhile, data showed that government debt interest payments reached £8.3 billion, the third-highest December repayment since monthly records began in 1997. The government borrowed £17.8 billion last month, significantly higher than the £14.6 billion forecast by the UK's official forecasting body, the Office for Budget Responsibility. Earlier this month, government debt interest payments briefly spiked due to concerns about the UK's economic outlook, but have since fallen back. Reeves has downplayed the impact of recent market volatility on achieving her own fiscal rules, which she has reiterated are "non-negotiable," meaning not borrowing to fund day-to-day spending.

Reeves also stated that regulators need to "regulate for growth" after government ministers dismissed the head of the UK's competition regulator on Tuesday. She added, "We want regulators to be part of the mission for economic growth, and that may not always have been the case in the past." Reeves had previously told businesses that she would not be "coming back with more borrowing or more taxes" after her first budget in October. However, UK economist Alex Kerr of the economic consultancy Capital Economics stated that the "December borrowing overshoot is another disappointing piece of news for the Chancellor" against a backdrop of weak economic growth and high interest rates.

He added that while the UK's borrowing costs have fallen back, they are still higher than when the budget was set, and suggested that Reeves may need to "raise taxes and/or cut spending" in March to meet her own rules. Danny Hewson, head of financial analysis at AJ Bell, argued that "only growth" can be a substitute for "controlling ambition." With the increase in national insurance rates and the reduction in employer thresholds, businesses will bear the brunt of the tax increases taking effect in April. Businesses have repeatedly warned that the additional costs, combined with increases in the minimum wage and reductions in business tax relief, could impact economic growth, with employers expected to reduce cash available for pay rises and new job creation.

Research released this week by Lloyds Bank, the UK's largest lender, showed that business confidence has "weakened further" and that rising prices will slow economic activity this year. The government's higher borrowing means that the difference between government spending and tax revenue is £4 billion higher than official forecasts after most of the financial year has passed. However, this figure includes many estimates that are often revised later. Borrowing figures for January are usually lower than those for December, as many people submit their self-assessment tax returns, increasing government revenue.

Separately, when asked if the UK would impose retaliatory tariffs if a Trump administration imposed tariffs on the UK, Reeves warned against "jumping the gun." She said, "There are no tariffs on the UK at the moment. I look forward to working with the Trump administration and the new US Treasury Secretary, who will be confirmed soon." She added, "When President Trump was last US President, trade between the UK and the US increased. I have no doubt that this can happen again for the benefit of both our economies."