Professor Joe Nellis

Public sector borrowing came in at £17.43bn for October, painting a challenging picture for the public finances and reinforcing the fiscal squeeze facing the Chancellor ahead of the Budget.

Despite signs of improving economic momentum in some sectors and a fall in inflation, the UK’s fiscal position remains fragile, shaped by subdued growth, rising welfare pressures, and the ongoing impact of higher interest rates on government debt servicing.

Today’s data show that borrowing for the year has risen compared with the same month last year, driven by a combination of three key factors: weaker-than-expected tax receipts, increased expenditure linked to inflation-indexed benefits, and another sizeable interest bill on index-linked gilts.

While the headline numbers stop short of a fiscal shock, they underline the limited room for manoeuvre the Chancellor will have when setting out next week’s Budget measures.

This is a sobering reminder of the fiscal reality confronting policymakers. The implications for the Budget are clear. Many government departments already operating under tight budgets are unlikely to see substantial relief, and any additional spending commitments will need to be highly targeted.

It is imperative that the Chancellor prioritises long-term reforms aimed at boosting productivity and growth rather than relying on short-term stimulus. Without a stronger economic engine, the UK will continue to face difficult trade-offs between funding essential services and stabilising the fiscal position.

The financial markets will be watching closely. A higher borrowing outturn at this stage increases the risk of further upwards pressure on gilt yields, especially with global rates still elevated. Any sign that the UK’s fiscal strategy lacks credibility would translate quickly into higher funding costs — something the Chancellor will be determined to avoid.

Looking ahead, the challenge for the Budget is to strike a balance between supporting a still-fragile economy and holding a steady fiscal line. With little margin for error, the government must use the Budget to restore business confidence, strengthen the growth outlook, and set a credible course for 2026 and beyond.

Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm with offices in Edinburgh and Aberdeen