UK budget deficit comes in below forecasts

In the first two months of the 2025–2026 fiscal year, the UK government deficit totaled 37.7 billion pounds ($50.7 billion), running below forecast. The result gave a modest boost to Chancellor of the Exchequer Rachel Reeves as she faces growing pressure to meet budget limits. 

The increase in employer payroll taxes that took effect in April brought additional revenues to the Treasury. Still, this improvement was partially offset by rises in public sector pay, social benefits, and procurement costs. Total government borrowing climbed from a year earlier but remained within the acceptable limits.

However, Bloomberg notes that either spending cuts or tax raises may be needed in the autumn Budget without additional measures. The situation is complicated by rising interest rates, the departure of wealthy non-residents from the country, and a possible slowdown in economic activity. All this casts doubt on the government's ability to comply with the announced budget rules without painful measures.