The UK borrowed £1.8bn in July, official figures showed on Friday, defying forecasts of a surplus and handing Chancellor John Healey an awkward set of numbers ten weeks before his first Budget.
The Office for National Statistics said public sector net borrowing excluding public sector banks was £700m higher than in July 2025, an increase of 68.7%. July is normally a surplus month because of self-assessed income tax receipts, and the Office for Budget Responsibility had pencilled in a £500m surplus — which would have been the first for the month since before the pandemic. Economists polled by Reuters had expected a balanced budget.
Record tax receipts were not enough to offset rising costs. Self-assessed income tax brought in £17.1bn, £1.7bn more than a year earlier and the highest July figure on record, while VAT receipts rose by about £1bn to £18.5bn. Against that, central government spending on social benefits was £2bn higher than a year ago and spending on goods and services, which includes staff costs, was up £1.2bn. Debt interest payments reached £7.7bn, almost 10% more than in July 2025.
"Fiscal discipline is the bedrock of our UK economic stability and national security," Healey said, adding that the government remained committed to meeting its fiscal rules.
The Chancellor said the UK was cutting its deficit faster than any other G7 economy while giving households "breathing space" on the cost of living and focusing support on getting young people into work.
The picture across the financial year is more mixed than the monthly headline suggests. Borrowing between April and July totalled £56.7bn, some £6bn — or 9.6% — lower than the same period last year, but £2.3bn above the OBR's March forecast of £54.4bn. The current budget deficit, the measure the government's main fiscal rule actually targets, stood at £34.7bn over the four months, better than the £36.7bn the OBR had projected. June's deficit was also revised down sharply, from £16bn to £12.8bn.
Public sector net debt reached £2,984.9bn at the end of July, almost £96bn higher than a year earlier and equivalent to 94.1% of GDP, though that ratio was 0.8 percentage points lower than in July 2025.
Grant Fitzner, the ONS chief economist, said borrowing so far this financial year was lower than a year ago both in cash terms and as a share of the economy, but remained above the OBR's spring forecast, with spending growth outpacing higher receipts in July.
Healey, appointed on 20 July when Prime Minister Andy Burnham replaced Rachel Reeves, has confirmed his first Budget for Wednesday 28 October. Burnham has said his government will stick to Labour's fiscal rules and to the 2024 manifesto commitment not to raise income tax, VAT or National Insurance — a combination economists say leaves little room for manoeuvre.
Estimates of the Chancellor's remaining margin vary widely. Capital Economics puts headroom at about £17bn, down from £24bn in March. Ashley Webb, the firm's UK economist, said the deficit was "on track to be above 4 per cent of GDP for the seventh year in a row". The Resolution Foundation is more pessimistic, describing the margin as "razor thin"; senior economist Elliott Christensen said stronger first-half growth had fed through to July's tax take but failed to deliver a wider windfall as the economic impact of the Middle East conflict pushed up borrowing costs.
Thomas Pugh, chief economist at RSM UK, said rising gilt yields were adding to long-term borrowing costs and that "the commitment to sticking to the fiscal rules means further tax rises are inevitable come the autumn Budget".
Professor Joe Nellis of MHA warned that "one encouraging month will not be enough to prevent difficult decisions" in October. Shadow chancellor Mel Stride, quoted by the BBC, said: "We simply cannot afford the price of Labour."
Join the Discussion
Have something to say? Join the conversation!
Sign in to share your thoughts and engage with other readers.
Sign In Create AccountNo comments yet
Be the first to share your thoughts on this article!