UK public sector borrowing rose more than expected in June, with borrowing for the first three months of the fiscal year ahead of where the Office of Budget Responsibility (OBR) forecasts.
Public sector borrowing rose to £20.7 billion in June, the Office for National Statistics revealed, up from £17.7 billion in May to the second-highest June borrowing since monthly records began in 1993. City economists had expected it to remain little changed.
Borrowing in May was revised down by the ONS to £17.4 billion from £17.7 billion previously, while borrowing in the fiscal year to May was cut to £37.1 billion from £37.7 billion previously.
The current budget deficit, borrowing to fund day-to-day public sector activities, was £16.3 billion.
Cost of borrowing
The interest payable on central government debt was £16.4 billion in June, reflecting interest on index-linked gilts led to a £8.4 billion increase from June last year and again the second-highest June figure since records began.
ONS acting chief economist Richard Heys said: "Borrowing in the month of June was over £6 billion higher than during the same time last year.
"The rising costs of providing public services and a large rise this month in the interest payable on index-linked gilts pushed up overall spending more than the increases in income from taxes and National Insurance contributions, causing borrowing to rise in June."
Cumulative public sector borrowing in the first three months of the 2025/26 fiscal year was £57.8 billion, up £7.4 billion on the same period in the previous year, but in line with the OBR’s forecast.
Undershot
"Central government spending and tax receipts have both slightly undershot the official forecasts so far this year, balancing each other out," said Rob Wood, chief UK economist at Pantheon Macroeconomics.
He said debt interest payments surged in June because they are determined by RPI inflation from two months previously, which in this case was raised by April’s energy utility price hike.
But, due to debt interest payments reaching the highest since June 2022, payments rose to £16.4 billion, well above the OBR’s £14 billion expectation, meaning total government spending was higher than expected, despite welfare and investment spending both coming in a little lower than planned.
"Today’s borrowing figures for June fail to move the dial on the likely tax hikes needed in the Autumn Budget," said Wood.
"Borrowing so far this fiscal year matches the OBR’s forecast, and weaker inflation in May and June will bring debt interest payments back in line with the OBR’s forecast.
"The Chancellor still has a major problem, however, created by U-turns on previously planned spending cuts and possible downgrades to OBR growth forecasts this Autumn.
"All told, we estimate that the Chancellor’s £9.9B of headroom has turned into a £13B hole, meaning that Ms. Reeves would need to raise taxes or cut spending by a little over £20B in the Autumn Budget to restore her slim margin of headroom," he said.
Off target
Matt Swannell, chief economic advisor to the EY ITEM Club, said the budget deficit of £44.5 billion after three months of the financial year was £5 billion more than the OBR forecast.
He feels that tax rises appear "increasingly likely" in the autumn Budget, "given the UK's medium-term fiscal position has weakened since the Spring Statement.
"Rising bond yields, the reversal of some welfare reforms, and US tariff changes will have increased spending and reduced tax revenues, shrinking the Government’s already-thin fiscal headroom," he said.
"The OBR is likely to revise down its optimistic growth forecasts, so it appears increasingly likely that to meet its fiscal rules, the government will have to find a way to raise additional revenue or make further spending cuts when it sets out its next Budget.”