UK borrowing jumps to £18bn in August
Newsflash: Britain’s government borrowing soared in August, as spending rose faster than tax receipts, adding to the challenges facing Rachel Reeves as she draws up the autumn budget.
Public sector net borrowing excluding public sector banks jumped to £18bn in August 2025. This was £3.5bn more than in August 2024 and the highest August borrowing for five years.
It’s also £5.5bn more than the £12.5bn which the Office for Budget Responsibility (OBR) had predicted the UK would borrow in August.
ONS chief economist Grant Fitzner said:
“Last month’s borrowing was the highest August total since the pandemic.
Although overall tax and National Insurance receipts were noticeably up on last year, these increases were outstripped by higher spending on public services, benefits and debt interest. Total borrowing for the financial year to date was also the highest since 2020.
Key events
Pound falls and bond yields rise after UK borrowing soars
This morning’s UK public finances are going down badly in the City.
The pound has dropped by half a cent this morning, to $1.35. That puts sterling on track for its third daily fall in a row, as it drops back from Tuesday’s two-month high.
Government bonds are under pressure too, as traders react to the news that borrowing is £11bn higher than forecast so far this year.
The yield, or interest rate, on 10-year UK gilts (bonds) is up 4 basis points at 4.7% (up from 4.66% last night).
30-year gilt yields have also risen by 4bps, to 5.54%.
Kathleen Brooks, research director at XTB, says today’s public finance data puts the sustainability of borrowing and the size of UK state into question:
The pound has sunk on this data, and is testing support at $1.3500, it is the second worst performing currency in the G10 FX space today, and is lower by 0.33% vs. the USD. The UK’s bond market is extremely fragile, 10-year and 30-year yields rose sharply on Thursday, although global long end yields were higher, the UK was the weakest performer across Europe and the US.
UK bond yields could rise further on this news, especially as the Bank of England is maintaining its ‘careful and gradual’ approach to loosening monetary policy. Although the BOE has reduced the amount of bonds that it is offloading from its balance sheet, especially long end bonds, they are still shrinking their balance sheet albeit at a slower pace. Thus, the BOE cannot be relied on to relieve pressure on the long end of the Uk Gilt curve.
The UK public finances are continuing to deteriorate despite the economy not being terribly weak, says Paul Dales, chief UK economist at Capital Economics.
And that means the chancellor will have to raise around £28bn in the Budget on 26 November, mostly through higher taxes, Dales adds, as borrowing so far this year is running above forecast.
He explains:
Public net sector borrowing of £18.0bn in August (consensus £12.8bn, OBR £12.5bn) means that after five months of the financial year borrowing is already £11.4bn higher than the OBR forecast at the Spring Statement in March.
The overshoot in the Chancellor’s chosen fiscal mandate of the current budget is even greater at £15.4bn (the current budget deficit was £13.6bn in August versus the OBR forecast of £9.5bn). Of course, what matter’s is what the OBR forecasts the current budget to be in 2029/30, which is when the Chancellor’s fiscal mandate bites.
Our current estimate is that it will forecast a deficit of about £18bn, meaning the Chancellor will have to raise £28bn (see here), mostly through higher taxes (see here), if she wants to keep her buffer against her rule of £10bn.
Mel Stride, the shadow chancellor, has accused Rachel Reeves of losing control of the public finances, following the jump in borrowing in August:
“Keir Starmer and Rachel Reeves are too weak and distracted to take the action needed to reduce the deficit. The chancellor has lost control of the public finances, and Labour’s weakness means much needed welfare reforms have been abandoned.”
James Murray, chief secretary to the Treasury, has responded to today’s UK public finance:
“This Government has a plan to bring down borrowing because taxpayer money should be spent on the country’s priorities, not on debt interest.
Our focus is on economic stability, fiscal responsibility, ripping up needless red tape, tearing out waste from our public services, driving forward reforms, and putting more money in working people’s pockets.”
Interest bill on government debt rises again
Once again, Britain spend billions of pounds servicing its growing national debt (and thus adding to it!).
The interest bill on central government debt rose to £8.4bn in August, £1.9bn more than in August 2024, and £900m more than in July.
This increase was driven by higher inflation, which added to the cost of index-linked government bonds.
So far this financial year, the interest payable on central government debt has increased by £10.6bn to £49.9bn, largely because the interest payable on index-linked gilts rises and falls with the Retail Prices Index (RPI) of inflation.
Borrowing so far this year is £11.4bn over forecast
Worryingly for Rachel Reeves, government borrowing so far this financial year is running ahead of the Office for Budget Responsibility’s forecasts.
From April to August, borrowing now totals £83.8bn, £16.2bn more than in the same five-month period of 2024.
That’s the second-highest April to August borrowing since monthly records began in 1993, beaten only by 2020 when Covid-19 drove up spending and hammered tax receipts.
It’s also £11.4bn more than the £72.4bn forecast by the Office for Budget Responsibility (OBR) in March.
That indicates that the chancellor could need to take measures to address rising borrowing, to stick within her fiscal rules.
MHA: “UK public sector borrowing jumps again deepening the Chancellor’s worries”
This morning’s jump in UK public sector borrowing will “deepening the Chancellor’s worries, warns Professor Joe Nellis, economic adviser at MHA, the accountancy and advisory firm.
Professor Nellis explains:
UK net public sector borrowing rose significantly in August to £17.96bn, piling extra pressure on the Chancellor as preparations intensify for the Autumn Budget.
The overshoot was driven by persistently high debt interest costs on inflation-linked gilts — 30-year gilts reached their highest in almost 30 years in August. The debt-inflation costs are now projected at over £110 billion in 2025-26. Higher borrowing is also the result of rising welfare spending and higher public sector pay settlements.
As the economy continues to falter, without any consistent and sustained growth, increased government borrowing makes the Chancellor’s fiscal headroom even slimmer ahead of the Budget on 26th November. This simply cannot go on. A government cannot continue to spend beyond its means while espousing belief in ‘fiscal stability,’ without evoking the wrath of the financial markets. The Chancellor has some very difficult, but very important, decisions to make at the Budget if fiscal stability is to be secured.
UK borrowing jumps to £18bn in August
Newsflash: Britain’s government borrowing soared in August, as spending rose faster than tax receipts, adding to the challenges facing Rachel Reeves as she draws up the autumn budget.
Public sector net borrowing excluding public sector banks jumped to £18bn in August 2025. This was £3.5bn more than in August 2024 and the highest August borrowing for five years.
It’s also £5.5bn more than the £12.5bn which the Office for Budget Responsibility (OBR) had predicted the UK would borrow in August.
ONS chief economist Grant Fitzner said:
“Last month’s borrowing was the highest August total since the pandemic.
Although overall tax and National Insurance receipts were noticeably up on last year, these increases were outstripped by higher spending on public services, benefits and debt interest. Total borrowing for the financial year to date was also the highest since 2020.
Introduction: Consumer confidence has fallen back
Good morning, and welcome to our rolling coverage of business, the financial markets and the economy.
UK consumer confidence has weakened, new data today shows, as people grow gloomier about the their personal financial situation and the state of the economy.
With a likely tax-raising budget looming in two months time, GfK’s consumer confidence Index decreased by two points to -19 in September, reversing a rise recorded in August.
All five measures of consumer confidence fell, including how confident people felt about making a major purchase.
Neil Bellamy, consumer insights director at GfK, warned there is an “autumnal chill” in this month’s report, and explains:
The August 7th decrease in interest rates does not appear to have provided any obvious boost to the financial mood of consumers or drawn attention away from day-to-day cost issues. Both personal finance measures – past and future – are lower, while our major purchases measure has dropped three points to -16.
Even more striking is an eight-point fall in saving intentions. Looking at the economy, sentiment is sliding sharply: in June 2024 our forward-looking measure stood at -11, but just 15 months later it has slumped to -32.
Perceptions of the past year remain weak too, down three from last month to -45. With tax rises expected in the November budget, the risk is that confidence inevitably falls, just like the autumn leaves.”
Yesterday, retailer Next warned that the economic outlook was weakening, giving the company “another reason to be cautious”.
