UK borrowing rises unexpectedly in July under new chancellor

John Healey inherited a public‑finance picture that appeared balanced, but Office for National Statistics data released on Friday showed borrowing of £1.8 billion in July. Analysts had expected a break‑even result, and the figure also exceeded the Office for Budget Responsibility’s spring forecast.

Why the surprise matters

The rise reflects higher spending outpacing receipts, including a slower‑than‑expected uptick in self‑assessment tax returns that usually boost July revenues. Grant Fitzner, chief economist at the ONS, noted that while borrowing is still lower than a year ago, it is above the watchdog’s estimate.

Debt interest payments climbed to £7.7 billion, keeping total public‑sector debt just under the £3 trillion threshold that has featured in recent political debate. Dennis Tatarkov, senior economist at KPMG UK, warned that ongoing cost‑of‑living measures and the economic fallout from the Iran‑related oil shock are likely to keep borrowing elevated in the near term.

Fiscal discipline is the bedrock of our UK economic stability and national security.

Sir Mel Stride, the shadow chancellor, warned that Labour’s fiscal plans could add a quarter of a trillion pounds to the national bill, a burden he says will fall on ordinary families.

What lies ahead

The figures are among the last full‑month snapshots John Healey will see before delivering the autumn budget on 28 October. He has signalled that the government remains within the fiscal rules, but market appetite for additional debt is limited, especially as the UK faces the highest borrowing costs among the G7.

Economist Simon French of Panmure Liberum suggests the Chancellor may not need to raise taxes immediately, but a modest increase could be required to fund defence and cost‑of‑living pledges. The upcoming budget will therefore test whether the government can balance its spending promises with the tighter borrowing environment.

With the OBR having previously underestimated borrowing after the Ukraine war, analysts expect a more cautious outlook as the UK navigates energy price pressures and geopolitical uncertainty.