UK government borrowing rose to £18bn in August — the highest level for the month in five years — piling pressure on Chancellor Rachel Reeves as she prepares for November’s Budget. The figure, well above forecasts, highlights the strain of higher welfare spending, public services, and debt interest costs.
Borrowing at Record Levels
The Office for National Statistics (ONS) said borrowing — the gap between government spending and tax income — was significantly higher than analysts had expected. Despite an increase in tax and National Insurance receipts, they were outpaced by rising costs.
The £18bn figure is the largest August total since 2020, when spending soared during the Covid pandemic. Over the first five months of the financial year, borrowing reached £83.8bn, some £16.2bn more than in the same period last year and well above the £72.4bn forecast by the Office for Budget Responsibility (OBR) in March.
Pressure on the Chancellor
Economists said the numbers underline the fiscal challenge facing Reeves. Paul Dales, chief UK economist at Capital Economics, described the figures as evidence of “the deteriorating nature of the public finances, even though the economy hasn’t been terribly weak”.
He warned Reeves may need to raise £28bn, “mostly through higher taxes”, to maintain her £10bn buffer under her fiscal rules.
Nabil Taleb, an economist at PwC UK, said Reeves faced “tough choices” to satisfy both financial markets and voters:
“The test will be whether she can make them palatable to both groups.”
Reeves’ Fiscal Rules
The chancellor has set two “non-negotiable” fiscal rules:
- Day-to-day spending must not be funded by borrowing by the end of this parliament.
- Debt must be falling as a share of national income by 2029/30.
Economists expect Reeves will need to find additional revenue — potentially through stealth taxes, duties, or spending cuts — to meet these commitments.
Rising Costs
Interest payments on government debt climbed by £1.9bn to £8.4bn in August, with inflation pushing up borrowing costs. Welfare spending also rose by £1.1bn to £27.3bn, largely due to inflation-linked benefits and higher state pension payments.
James Murray, Chief Secretary to the Treasury, said the government had a plan to restore order to the public finances:
“Taxpayer money should be spent on the country’s priorities, not on debt interest. Our focus is on economic stability, fiscal responsibility and putting more money in working people’s pockets.”
But the Conservatives accused Reeves of losing control. Shadow chancellor Sir Mel Stride wrote on X:
“Keir Starmer and Rachel Reeves are too weak and distracted to take the action needed to reduce the deficit.”
Market Reaction
The pound slipped 0.5% against the dollar to $1.349 following the ONS release, while government bond yields rose, reflecting higher borrowing costs for the Treasury.
Retail Sales Boost
Alongside the borrowing data, the ONS reported that warmer weather in August delivered a boost to the High Street. Retail sales rose 0.5% during the month, slightly above expectations, with butchers, bakers, clothing retailers, and online shopping all seeing growth.
Over the three months to August, however, sales fell by 0.1%, showing the overall weakness in consumer spending.
Jacqueline Windsor, head of retail at PwC, said:
“August caps off a better-than-expected summer, particularly for non-food retailers. But sales volumes remain below pre-pandemic levels, so the high street is far from being out of the woods.”
Alice Cowley, managing director at Accenture’s retail practice, warned that retailers were bracing for more challenges heading into the autumn, including energy and labour cost pressures as well as uncertainty over possible Budget measures.
Key Takeaway
The sharp rise in borrowing underscores the balancing act facing Reeves ahead of her first Budget. While warmer weather gave retailers a short-term lift, economists warn that higher spending and weak growth leave little room for manoeuvre — with taxes likely to rise to fill the gap.
