NextFin news, On Friday, September 19, 2025, the UK government’s net borrowing excluding public sector banks reached £18 billion in August, marking the highest August borrowing figure in five years and surpassing the Office for Budget Responsibility’s (OBR) forecast of £12.5 billion by £5.5 billion, the Office for National Statistics (ONS) reported.
This borrowing increase was driven by faster growth in government spending compared to tax and National Insurance receipts. Higher expenditure on public services, welfare benefits, and a rising interest bill on government debt contributed significantly to the surge. The interest payments on central government debt rose to £8.4 billion in August, up £1.9 billion from the previous year, largely due to inflation-linked bond costs.
Grant Fitzner, chief economist at the ONS, stated, "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."
Borrowing for the first five months of the financial year (April to August) totaled £83.8 billion, which is £16.2 billion more than the same period in 2024 and £11.4 billion above the OBR’s March forecast of £72.4 billion. The current budget deficit, which covers day-to-day government spending, was £13.6 billion in August, up from £9.6 billion in August 2024, bringing the fiscal year-to-date current budget deficit to £62 billion.
Economic advisers warn that the government faces significant fiscal challenges ahead. Matt Swannell, chief economic advisor to the EY ITEM Club, commented, "The Government’s performance against its primary fiscal rule will be judged by the progress made on the current budget. The latest data shows it may be starting from a more difficult position than expected at the Spring Statement, and greater fiscal challenges loom."
Paul Dales, chief UK economist at Capital Economics, estimated that Chancellor Rachel Reeves will need to raise around £28 billion in the upcoming November Budget, mostly through higher taxes, to maintain fiscal stability and meet her fiscal rules. He noted that borrowing so far this year is running £11.4 billion above forecasts, with the current budget deficit overshooting by £15.4 billion.
The borrowing surge has also affected financial markets. The pound sterling fell by half a cent to $1.35 on Friday morning, marking its third consecutive daily decline. UK government bond yields rose, with 10-year gilt yields increasing by 4 basis points to 4.7%, reflecting market concerns about the sustainability of the UK’s public finances.
Shadow Chancellor Mel Stride criticized the government’s handling of public finances, stating, "The chancellor has lost control of the public finances, and Labour’s weakness means much needed welfare reforms have been abandoned." In response, James Murray, Chief Secretary to the Treasury, said, "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."
The ONS also reported that public sector net debt excluding public sector banks was provisionally estimated at £2.91 trillion at the end of August 2025, equivalent to 96.4% of gross domestic product (GDP), up 0.5 percentage points from a year earlier and at levels last seen in the early 1960s.
The borrowing figures come as Chancellor Rachel Reeves prepares for the autumn Budget scheduled for November 26, 2025, where difficult fiscal decisions, including potential tax increases, are expected to address the growing fiscal deficit and debt servicing costs.
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