UK public sector net borrowing rose to £18.3 billion in August, £2.9 billion more than a year earlier and the second-highest August total on record. The figure, released this morning by the Office for National Statistics, was £3.5 billion above the OBR’s own forecast for the month, a gap that matters because that forecast is the benchmark the Chancellor is actually held to.
Debt interest keeps borrowing above plan
Spending growth outpaced receipts through August, but the underlying driver is the cost of servicing existing debt. Central government debt interest payable reached £8.8 billion, the highest August figure since monthly records began in 1997, including a £2.1 billion capital uplift on RPI-linked gilts, index-linked bonds whose value rises with inflation.
With roughly a quarter of UK debt inflation-linked, that cost has kept borrowing above forecast even as tax receipts have grown solidly.
Over the financial year to August, borrowing stood at £77.3 billion, £2.2 billion lower than the same period last year but £8.1 billion above the OBR’s forecast, extending an overshoot already visible in July, when borrowing came in £2.3 billion above plan.
Today’s data shows that government borrowing in the five months since April is running ahead of the official forecast from last March… The numbers do, however, speak to the broad challenges facing the Chancellor. Debt interest spending is a worryingly large share of overall government spending and has been pushed up since the OBR’s March forecasts.
Nick Ridpath, Research Economist, Institute for Fiscal Studies
What comes next
The Budget is confirmed for the 28th of October, when the OBR will publish updated forecasts. Economists cited by the BBC have suggested the Chancellor may need to find around £15 billion, potentially through tax rises, to meet the government’s fiscal rules. The IFS has cautioned that first-five-month borrowing totals have historically been revised by an average of £5 billion in either direction, a reason against over-reading a single month’s figures ahead of that Budget.