Emeritus Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm.

“While there is no room for complacency, fiscal sustainability is likely to become more manageable as 2026 progresses.”

The UK’s fiscal position is heading towards a more stable condition than many had feared. Public sector net borrowing for the month is estimated at around £11.5bn, lower than market expectations and the same period a year earlier.

This outcome reflects a combination of steady tax receipts and a gradual easing in some areas of spending pressure. While December is typically a heavy borrowing month, as borrowing looks high because cash outflows peak before major tax receipts arrive, the latest estimate points to a welcome and much-needed degree of control over the public finances. It reinforces the sense that, despite a challenging economic backdrop, fiscal outcomes are slowly becoming more predictable.

For the wider state of government finances, the December figures offer cautious reassurance. Borrowing remains elevated in absolute terms, but the trend is moving in the right direction. Slowing inflation and moderating earnings growth are beginning to reduce upwards pressure on public sector spending, particularly on inflation-linked items. At the same time, the economy has shown tentative signs of resilience, with GDP rising by 0.3% in November — higher than expected — helping to underpin revenues. While there is no room for complacency, fiscal sustainability is likely to become more manageable as 2026 progresses.

The implications for government bond markets are broadly positive. Lower-than-expected borrowing should reassure investors that the Government’s long-term fiscal strategy is sustainable. Combined with the hope of an interest rate cut in Spring, this supports a more stable outlook for gilt yields. While yields are likely to remain sensitive to global developments, the near-term risk of sharp upward pressure appears to have diminished.

This strengthens the government’s hand. A more stable borrowing profile provides greater flexibility ahead of key fiscal decisions later in the year, even as longer-term challenges around debt levels and public service funding remain.

The road to fiscal recovery is uneven but appearing on the horizon. Borrowing remains significant, but it is increasingly consistent with an economy that is stabilising rather than deteriorating. For markets, businesses and policymakers alike, this offers a more constructive economic climate for the year ahead — one where fiscal credibility is being maintained and the focus can increasingly shift from crisis management to a longer-term economic strategy that is focused on improving productivity and establishing the conditions for sustainable economic growth.

Among its 30 locations, accountancy and business advisory firm MHA has offices in Edinburgh and Aberdeen.