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Economists predict higher taxes and borrowing after UK deficit overshoots forecasts – business live

Tough budget looms after UK deficit hits £3.1bn in July – ahead of City forecasts of £1.5bn, and soaring over OBR forecast of £100m

Rachel Reeves planning to raise taxes and cut spending in October budget

Today’s public finances show that the UK’s decent-looking growth rate this year does not mean that everything is rosy in the economy.

Isabel Stockton, senior research economist at the Institute for Fiscal Studies, explains:

Tax revenues – despite economic growth in the first quarter of the financial year surpassing some of the more pessimistic expectations – are running close to forecast or, if anything, slightly behind. This, combined with higher spending, leaves borrowing higher than forecast.

All of these data are preliminary and we should be cautious of over-interpreting them. But the early signs are that better-than-expected growth figures won’t be enough save Rachel Reeves from tough choices in her first Budget on 30 October.

The combination of in-year spending pressures identified at last month’s spending audit and the ongoing, and well known, pressures facing many public services suggest that the accompanying spending review for 2025-26 could be a particularly difficult exercise.”

Overall, today’s release highlights the tight fiscal backdrop that the Chancellor faces ahead of her first Budget on 30th October. We still think that she will look to raise an additional £10bn a year via higher taxes in the Budget and increase borrowing by around £7bn a year.

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