Government borrowing surged to £3.1 billion last month, more than double the figure recorded in the same period last year, as increased spending on public services and welfare strained the public finances.

This unexpected rise in the deficit has intensified the ongoing debate between Labour and the Conservatives over the state of the economy.

The latest data, released by the Office for National Statistics (ONS), reveals that July’s borrowing was the highest for that month in three years and significantly exceeded the government’s expectations.

The Office for Budget Responsibility (OBR) had predicted a deficit of £3 billion less than the actual figure, highlighting the challenges facing the Treasury.

Jessica Barnaby, the ONS deputy director for public sector finances, pointed to robust public spending as the primary reason for the borrowing overshoot.

“July borrowing was almost £2 billion higher this year than in 2023. Revenue was up on last year, with income tax receipts in particular growing strongly,” she explained.

“However, this was more than offset by a rise in central government spending where, despite a reduction in debt interest, the cost of public services and benefits continued to increase.”
Jessica Barnaby

July typically sees strong public finances in the UK, bolstered by income tax self-assessment returns. Last year, the government borrowed £1.3 billion in July to bridge the gap between revenue and spending.

This year’s figures, however, suggest a growing strain on public finances, with analysts warning of a difficult budget ahead.

Chancellor Rachel Reeves is facing a tough fiscal environment, and experts believe she will have no choice but to implement stringent measures in her upcoming budget on 30 October.

Alex Kerr, a UK economist at Capital Economics, commented on the situation: “We still think that she will look to raise an additional £10 billion a year via higher taxes in the budget and increase borrowing by around £7 billion a year.”

Challenging Budget Looms Amid Fiscal Pressures

Isabel Stockton, a senior research economist at the Institute for Fiscal Studies, urged caution, noting that the figures are preliminary.

“All of the data is preliminary and we should be cautious of overinterpreting it. But the early signs are that better-than-expected growth figures won’t be enough to save Rachel Reeves from tough choices in her first budget.”
Isabel Stockton

Stockton also warned that the upcoming spending review for 2025-26 could be particularly challenging, given the ongoing pressures on public services.

Darren Jones, the chief secretary to the Treasury, used the figures to criticize the previous government.

“Today’s figures are yet more proof of the dire inheritance left to us by the previous government. A £22 billion black hole in the public finances this year, a decade of economic stagnation, and public debt at its highest level since the 1960s, with taxpayers’ money being wasted on debt interest payments rather than on our public services.”
Darren Jones

Darren Jones the chief secretary to the Treasury — Darren Jones

According to the ONS, the UK borrowed a total of £51.4 billion in the first four months of the 2024-25 financial year.

Although this is £500 million less than in the same period last year, it is still the fourth highest year-to-July borrowing on record, with monthly data going back to January 1993.

At the time of former Chancellor Jeremy Hunt’s budget in March, the OBR forecasted borrowing for this financial year to be £87 billion. However, the deficit is now £4.7 billion higher than predicted, underscoring the fragile state of the UK’s public finances.

Reeves is preparing to take action in the upcoming budget, with plans to raise taxes, cut spending, and implement stricter measures on benefits.

The chancellor accused the previous government of leaving her with the worst economic inheritance since the postwar era, including a £22 billion fiscal shortfall.