UK government borrowing jumps over forecast to £18.3bn in August,in ‘dismal picture’ ahead of the budget – business live

Introduction: UK borrowing jumps to £18.3bn in August

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Britain’s national debt is rising faster than expected after the government borrowed more than expected, again, to balance the books.

The latest public finances data, just released, shows that the UK borrowed £18.3bn in August, which is £2.9bn more than in August 2025, as spending rose faster than government income.

This is higher than the £15.6bn forecast by the City. But more importantly, it’s £3.5bn above the Office for Budget Responsibility (OBR)‘s forecast for August.

And it means that so far this financial year, the UK has borrowed £8.1bn more than the OBR’s forecast.

This all adds up to a headache for chancellor John Healey as he works on next month’s budget, as the recent bond market turmoil has eaten into his ‘headroom’ to keep within the fiscal rules.

Emeritus professor Joe Nellis, head of economic research at accountancy and advisory firm MHA, says this morning’s data is “another reminder of the fiscal straightjacket facing the Government” ahead of the budget.

Nellis adds:

But why is the deficit proving so hard to reduce? The weakness lies mainly on the expenditure side. Higher inflation is impacting spending on public-sector pay, state benefits and pensions. And last week’s announcement that inflation has hit 3.1% will not have helped.

On top of this, the cost of servicing the national debt remains exceptionally high. Public sector net debt is just below £3 trillion, representing around 94% of GDP, the highest since the early 1960s.

Chief Secretary to the Treasury, Emma Reynolds, says the government is committed to meeting the fiscal rules with “a buffer against uncertainty”.

Responding to this morning’s public finances data, Reynolds says:

“Britain has huge potential to deliver good growth in every postcode, creating jobs, raising living standards and investing in the services people rely on. But we can only deliver that growth with fiscal discipline.

“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.

“That is why we are committed to meeting our fiscal rules with a buffer against uncertainty, taking the tough decisions needed to keep the public finances on a sustainable path.”

Today’s public finances paint a “dismal picture” ahead of October’s budget, says Ruth Gregory, deputy chief UK economist at consultancy Capital Economics.

This supports our view that a small or medium-sized tax and spending Budget is more likely than a big one and that many of the PM’s policy ambitions will be reined in or delayed to avoid big tax hikes and/or a backlash in the markets.

Gregory points out tha government tax receipts were £200m higher than forecast by the OBR. The problem, she explains, is that central government expenditure overshot the OBR’s forecast by £2.3bn, partly because higher RPI inflation pushed up debt interest payments (see earlier post).

And if the economy weakens, and the government announces more cost-of-living support, borrowing could rise further.

Gregory concludes:

We think borrowing will be about £125bn (3.9% of GDP) in 2026/27 (OBR forecast £115bn) and that the Chancellor will need to raise between £9-14bn in the Budget to restore his existing fiscal headroom.

The cost of servicing the UK’s national debt has hit a record high for any August, as rising inflation drove up interest payments.

Today’s public finances show that central government debt interest bill was £8.8bn in August – the highest August figure since monthly records began in 1997.

This includes a £2.1bn bill on index-linked gilts – bonds where the repayments is linked to the RPI inflation rate.

August’s debt bill was lower than in each of the first three months of the current financial year, the ONS points out.

These debt payments are soaking up money which could otherwise be used to fund schools, hospitals, defence, or all the demands on the public purse.

Nabil Taleb, economist at PwC UK, explains:

Higher debt servicing costs absorb a greater share of government revenues, reducing fiscal room and leaving the public finances more exposed to future economic shocks.

“A better near-term borrowing outturn would help, but it would not remove the pressure created by higher government borrowing costs. Thirty-year gilt yields recently reached their highest level since 1998, which matters because it raises the cost of long-term financing at a time when fiscal room is already tight. While higher gilt yields do not feed through into debt interest costs immediately, they make it harder for improvements in the monthly borrowing figures to translate into lasting fiscal headroom. For the Budget, that leaves the government relying not just on better borrowing data, but on some easing in borrowing costs as well.”

“Borrowing in the financial year so far was lower than over the same period last year. However, it was higher than the official forecast, largely because central government borrowed more than anticipated.

“On the month, borrowing was up by almost a fifth on last August, as spending increased more than government income partly reflecting the impacts of inflation.”

There is one piece of good news in the public finances – the UK has borrowed less so far since April than a year ago.

So far this financial year, the UK has borrowed £77.3bn, which is £2.2bn less than in the same period last year (but £8.1 billion above the OBR forecast).

And as a share of the economy, it’s actually the 10th-lowest April to August borrowing since comparable monthly records began in 1993.

Introduction: UK borrowing jumps to £18.3bn in August

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Britain’s national debt is rising faster than expected after the government borrowed more than expected, again, to balance the books.

The latest public finances data, just released, shows that the UK borrowed £18.3bn in August, which is £2.9bn more than in August 2025, as spending rose faster than government income.

This is higher than the £15.6bn forecast by the City. But more importantly, it’s £3.5bn above the Office for Budget Responsibility (OBR)‘s forecast for August.

And it means that so far this financial year, the UK has borrowed £8.1bn more than the OBR’s forecast.

This all adds up to a headache for chancellor John Healey as he works on next month’s budget, as the recent bond market turmoil has eaten into his ‘headroom’ to keep within the fiscal rules.

Emeritus professor Joe Nellis, head of economic research at accountancy and advisory firm MHA, says this morning’s data is “another reminder of the fiscal straightjacket facing the Government” ahead of the budget.

Nellis adds:

But why is the deficit proving so hard to reduce? The weakness lies mainly on the expenditure side. Higher inflation is impacting spending on public-sector pay, state benefits and pensions. And last week’s announcement that inflation has hit 3.1% will not have helped.

On top of this, the cost of servicing the national debt remains exceptionally high. Public sector net debt is just below £3 trillion, representing around 94% of GDP, the highest since the early 1960s.