Chancellor Rachel Reeves has reported that government borrowing in July was lower than anticipated, according to official data. Borrowing totalled £1.1bn, reflecting the gap between tax income and overall expenditure. The Office for National Statistics (ONS) noted that this figure is £2.3bn less than the same period last year. The fiscal watchdog had forecasted borrowing of £2.1bn for the month. In contrast, government borrowing in June reached £20.7bn, marking a £6.6bn increase compared to the previous year.
“Borrowing this July was £2.3bn down on the same month last year, and was the lowest July figure for three years,” said ONS deputy director for public sector finances Rob Doody. “This reflects strong increases in tax and national insurance receipts.
“However, in the first four months of the financial year as a whole, borrowing was over £6bn higher than in the same period in 2024.”
Public debt has risen over the past year to 96.1% of the UK’s GDP, causing concern among bond traders. The Office for Budget Responsibility (OBR) may view these borrowing figures negatively, especially following a July report warning that public debt could surge from the current 95% of GDP to 270% in 50 years. The report suggested that the UK might struggle to afford the triple lock pension and balance the costs of achieving net zero with the impacts of climate change, further straining public finances.
The immediate threat to public finances has been highlighted by several forecasters in the City and across the UK, with the OBR expected to deliver its assessment of the UK economy in the upcoming Autumn Budget. The National Institute of Economic and Social Research (NIESR) indicated that the government might need to address a £50bn deficit through increased taxes due to lower growth forecasts, policy reversals, and the potential rise in borrowing costs. Other City analysts have suggested that at least £10bn in taxes may need to be raised later this year.
Rising government borrowing costs are causing concern, with potential tax hikes on property, pensions, and businesses among the options being considered by the Treasury. However, officials are wary of making unpopular decisions. Bond markets have reacted with alarm as long-term gilt yields have risen, increasing borrowing costs. The UK is experiencing a lack of trust from global traders, and quantitative tightening has exacerbated costs for the Treasury. UK long-term gilt yields have surpassed those of US government bonds, indicating a higher risk premium for the UK.
Chancellor Reeves has emphasised the importance of adhering to her fiscal rules to reassure lenders, stating that it is not “progressive” to pay off US hedge funds holding gilts.
