Official figures show the UK government borrowed less than expected in July, providing some relief for Chancellor Rachel Reeves as she prepares for her autumn budget. According to the Office for National Statistics (ONS), public sector net borrowing—the gap between spending and income—fell to £1.1 billion, down £2.3 billion from the same month last year.
This figure was lower than the £2.6 billion deficit predicted by financial markets and the £2.1 billion forecast by the Office for Budget Responsibility (OBR). Borrowing for the first four months of the financial year totalled £60 billion, matching the OBR’s forecast but still £6.7 billion higher than the same period last year, making it the third-highest April-to-July borrowing since records began.
However, the OBR noted that the current budget deficit—a key measure for the chancellor’s fiscal rule—was £42.8 billion over the first four months, £5.7 billion above its forecast. Despite the better-than-expected July numbers, economists warn that Reeves still faces a tough budget ahead, as the OBR is likely to cut its growth forecasts for the UK economy, and recent welfare policy reversals by Labour could add to borrowing costs.
Alex Kerr, a UK economist at Capital Economics, estimated that Reeves may need to raise between £17 billion and £27 billion to maintain a £9.9 billion buffer against her fiscal rules. He noted that the latest figures do little to improve the challenging outlook for the upcoming budget.
The Guardian has reported that ministers are considering options to raise more revenue through inheritance and property taxes. Earlier this month, the National Institute of Economic and Social Research warned that the public finance shortfall could exceed £40 billion.
Martin Beck, chief economist at WPI Strategy, said the recent data offers Reeves some breathing room, though the overall situation remains tight. He suggested that talk of a major “black hole” in public finances may be overstated.
In a separate development, private sector business activity rose in August to its highest level in a year, according to the S&P Global purchasing managers’ index (PMI), which the Bank of England closely monitors. The PMI climbed to 53, up from 51.5 in July, indicating continued economic growth after a sluggish spring. A reading above 50 signifies expansion.
Despite this, Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that business confidence remains fragile, with concerns over recent government policy changes and geopolitical uncertainty. He also highlighted that goods exports continue to decline sharply.
The ONS attributed the better-than-expected borrowing figure to strong tax revenue increases, partly due to the rise in employer national insurance contributions introduced in April. For the financial year so far, social contributions were £9.5 billion higher than the same period last year, with employer NICs up 24% in July year-on-year. Overall tax receipts, however, were 0.2% below the OBR’s forecast.In the first four months of the financial year, the UK’s public finances usually benefit from a strong position in July, thanks to a key deadline for self-assessed income tax payments.
However, government spending also increased significantly. This was due to higher public sector pay and inflation-linked benefit payments, which drove up operating costs. Debt interest payments also rose, as higher inflation increased the cost of servicing the national debt.
The Office for National Statistics estimated that public sector net debt reached 96.1% of GDP, one of the highest levels since the 1960s.
Economists warned that rising inflation could put further pressure on public finances. Official figures released on Wednesday showed the headline inflation rate rose more than expected to 3.8% in July, driven by higher food prices and companies passing on tax increases to consumers.
Darren Jones, Chief Secretary to the Treasury, said: “Far too much taxpayer money is being spent on interest payments for the longstanding national debt. That’s why we’re working to reduce government borrowing over the course of this parliament – so working people don’t have to foot the bill, and we can instead invest in better schools, hospitals, and services for working families.”
Frequently Asked Questions
Of course Here is a list of FAQs about the UK borrowing less than expected in July designed to be clear and helpful for a range of readers
General Beginner Questions
1 What does it mean that the UK borrowed less
It means the governments income was higher than its spending for that month To cover the difference it had to borrow less money from financial markets by issuing bonds
2 Who is Rachel Reeves and why is this a boost for her
Rachel Reeves is the UKs Chancellor of the Exchequer Its a boost for her because it suggests the governments finances are in a stronger position than predicted giving her more flexibility and potentially more money to fund her plans for public services or tax cuts
3 Why does the government need to borrow money at all
The government almost always spends more than it collects in taxes in a given year This difference is called the budget deficit To fund this gap and pay for public services like the NHS schools and infrastructure it borrows money
4 Is borrowing less always a good thing
Generally yes It means the national debt is growing more slowly which saves money on interest payments in the long run However if its achieved by cutting essential public spending during a crisis it could be seen as negative
Intermediate Impact Questions
5 What were the actual numbers and how did they compare to expectations
In July 2024 public sector net borrowing was X billion This was significantly lower than the Y billion that independent economic forecasters like the Office for Budget Responsibility had predicted
6 What are the main benefits of lowerthanexpected borrowing
Lower Debt Interest The government pays less interest on its total debt
Fiscal Headroom It gives the Chancellor more headroom against their own fiscal rules creating potential for tax cuts or increased spending in the next budget
Market Confidence It can boost confidence among international investors in the UKs economic management potentially making future borrowing cheaper
7 What caused borrowing to be lower than expected
This is usually due to a combination of factors
