Reeves is optimistic despite the sudden rise in UK borrowings.

Michael Reiss & Faisal Islam

Business reporter and economics editor, BBC News

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Prime Minister Rachel Reeves said she was “optimistic” about the British economy despite pressure on the government's finances after borrowing rose more than expected in December.

According to official statistics, borrowing, which is the difference between spending and revenue, hit a four-year December high of $17.8 billion last month.

Spending on public services, benefits and debt service all rose this year, while increases in tax receipts were offset by cuts to national insurance under the previous government.

The latest rise in borrowing costs threatens the government's economic plans, with Reeves under pressure after figures last week showed the UK economy was in recession.

The government has said economic growth is a top priority to improve living standards, but concerns about the health of the economy have fueled speculation that Reeves may cut spending on public services.

The Prime Minister signaled his intention to support expansion at Heathrow and Gatwick airports to boost the economy despite environmental concerns, and reiterated his pledge to go “even faster” for growth.

“We will look at all our plans to build infrastructure and attract investment to the UK, to attract investment to the UK,” she told the BBC during a visit to the World Economic Forum in Davos, Switzerland, attended by investors who own the airport. He said.

“When there are decisions to be made about infrastructure investment, the answer can’t always be ‘no,’ but under this administration, the answer is ‘yes,’” Reeves added.

The Treasury is considering whether to support a third runway at Heathrow Airport and approve a second runway at Gatwick Airport, but such projects are unlikely to get off the ground for some time.

The potential plan comes as figures revealed interest charged on government debt had reached $8.3 billion, the third-highest December repayment since monthly records began in 1997.

The amount borrowed by the government last month was $17.8 billion, much higher than the $14.6 billion predicted by the Office for Budget Responsibility, the UK's official forecasting agency.

Interest rates charged on government debt jumped earlier this month in part due to concerns about Britain's economic outlook, but have since declined.

Reeves downplayed the impact recent market turmoil would have on her ability to adhere to the financial rules she has set for herself. The rule, he reiterated, is “non-negotiable,” with a pledge not to borrow to finance everyday spending.

She also said the regulator needed to “regulate for growth” after government ministers ousted the head of Britain's competition watchdog on Tuesday.

“We want regulators to engage in the mission for growth in a way they haven’t in the past,” she added.

Reeves has previously told businesses he “will not come back with more borrowing or more taxes” after the first budget in October.

But Alex Kerr, UK economist at Capital Economics, said that against a backdrop of weak economic growth and high interest rates, “the December borrowing glut is even more disappointing news for the chancellor.”

He said Britain's borrowing costs had fallen but were still higher than at the time of the budget and suggested Reeves “may have to raise taxes or cut spending” in March to meet his rules.

Danni Hewson, head of financial analysis at AJ Bell, suggested that “growth alone” could provide an alternative to “dominant ambition”.

Companies are expected to take the brunt of tax increases, including increases in national insurance premiums and lower limits for employers, which will take effect from April.

Businesses have repeatedly warned that the additional costs, along with higher minimum wages and reduced corporate tax cuts, could impact economic growth, with employers looking to increase wages and lack cash to create new jobs.

Research published this week by Lloyds Bank, Britain's largest lender, found business confidence has become “weaker” this year as rising prices have slowed activity.

High government borrowing means that, with most of the fiscal year behind us, the difference between how much the government spends and what it brings in in taxes is 4 billion more than official forecasts.

However, these figures include estimates that are often revised later.

Borrowing in January is typically lower than in December. This is because more people submit voluntary tax returns, which increases government revenue.

Separately, when asked whether Britain would introduce retaliatory tariffs if the Trump administration imposes its own tariffs on Britain, she warned “not to get ahead of ourselves.”

“There were no tariffs in the UK,” she said. “And I look forward to working with the Trump administration and the new Treasury Secretary once he is confirmed soon.

“Trade between the UK and the US increased when President Trump was the last president of the US. I have no doubt that it can happen again for the benefit of both economies.”

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