Government borrowing fell by £7.1 billion in December as income tax and national insurance receipts surged, easing short-term pressure on the public finances, but investors have been warned that high debt levels continue to pose risks for interest rates and fiscal policy.
Data from the Office for National Statistics showed public sector borrowing stood at £11.6 billion last month, down 38 per cent year-on-year.
The reduction was driven by a £7.7 billion annual increase in tax revenues, while spending rose by £3.2 billion. However, over the financial year to date, borrowing remains stubbornly high at £140.4 billion, the third-highest April-to-December total on record.
For property investors, the key concern remains debt. Public sector debt now equals 95.5 per cent of GDP, continuing an upward trajectory that has implications for future tax policy, government borrowing costs and interest rate decisions.
The government spent £9.1 billion servicing debt in December alone, highlighting the sensitivity of the public finances to elevated interest rates. While markets expect the Bank of England to cut rates later this year, economists caution that high debt could limit how far and how fast rates fall.
Dennis Tatarkov of KPMG UK said debt interest remained a major constraint, even as headline borrowing improves.
Chancellor Rachel Reeves has already raised taxes significantly, including measures affecting property investors, but borrowing over the year has barely moved, raising questions over whether further fiscal tightening may be required.
Wealth and investment specialists warned that while lower monthly borrowing may support short-term market confidence, the structural imbalance in the public finances has not been resolved.
Philly Ponniah of Philly Financial said: “High debt narrows policy options. That increases the risk of future tax rises or prolonged higher rates, both of which matter directly to property investors.”
With inflation still above target and economic growth uneven, analysts say the sustainability of government borrowing, rather than a single month’s improvement, will be a key factor shaping mortgage rates, investor sentiment and housing market confidence through 2026.
