Ruth Gregory, deputy chief UK economist at Capital Economics, said it is a “dismal backdrop for the autumn Budget, with the government once again borrowing more than expected”.
She said the figures raise the likelihood of many of Prime Minister Andy Burnham’s policy ambitions being “reined in or delayed to avoid big tax hikes and/or a backlash in the markets”.
Gregory also warned that, with the economy weakening, the government is likely to continue borrowing more than expected.
Emma Reynolds, chief secretary to the Treasury, said that the UK has “huge potential” for economic growth, but only with “fiscal discipline” from the government.
“At a time when debt interest costs billions of pounds that could otherwise be spent on improving lives, we must always know where the money is coming from to pay for public services,” she said.
She added that the government is committed to its fiscal rules “with a buffer against uncertainty”.
However, Conservative shadow chancellor Andrew Griffith said the Labour government had “lost control of the public finances” by overshooting the OBR’s forecasts.
“Only the Conservatives will make the tough choices on welfare and public spending to get Britain’s finances under control,” he said.
Economists think the chancellor may have to find £15bn, perhaps through tax rises, to do this and meet the government’s self-imposed spending rules.
Inflation – the pace of price rises – has been above target, and putting pressure on the UK economy.
Consumer price inflation rose to its highest rate in five months in the year to August, running at 3.1%, pushed up in part by the fallout from the US-Israel war in Iran.
