In the News Teaching Activity – how concerning is the increase in government borrowing? (Jan 2025)

Government borrowing surged to £17.8bn in December, the highest for the month in four years.

The unexpectedly high borrowing, exceeding forecasts by £3.2bn, raises economic alarm as interest on government debt reached £8.3bn, the third highest for any December since 1997. With weak economic growth and high borrowing costs, Chancellor Rachel Reeves faces mounting pressure to tighten fiscal policy. Analysts suggest public spending cuts and potential tax hikes may be necessary to meet fiscal rules, risking further strain on businesses and households amidst economic stagnation. [Ed Conway also explored the topic of higher bond yields and jitters about rising government borrowing costs recently in his explainer video on Sky News - UK long-term borrowing costs highest this century - Ed Conway analysis | News UK Video News | Sky News]

Blow to Chancellor Rachel Reeves after surprise UK borrowing jump - BBC News

1. How does the higher government borrowing in December affect the UK’s budget deficit and national debt?

2. What is the opportunity cost of rising debt interest payments for the UK government? Assess how might this impact public services and investment in other areas.

3. Discuss the benefits and costs of higher government borrowing for an economy like the UK. Consider its impact on economic growth, public services, and financial market confidence.