UK borrowing higher than forecast in June as debt interest costs soar
The Office for National Statistics (ONS) said June borrowing rose to £20.7 billion last month – £6.6 billion higher than a year earlier and the second highest June borrowing since records began, only behind that seen in 2020 at the height of the pandemic.
The ONS said interest payable on debt jumped to £16.4 billion due to a large rise in Retail Prices Index (RPI) inflation impacting index-linked government bonds.
June borrowing was higher than the £17.6 billion expected by most economists and the £17.1 billion forecast by Britain's independent economic forecaster, the Office for Budget Responsibility (OBR).
Borrowing for the first three months of the financial year to date stood at £57.8 billion, £7.5 billion more than the same three-month period in 2024.
Richard Heys, acting chief economist at the ONS, said: 'The rising costs of providing public services and a large rise this month in the interest payable on index-linked gilts pushed up overall spending more than the increases in income from taxes and national insurance contributions, causing borrowing to rise in June.'
The ONS said so-called compulsory social contributions, largely made up of national insurance contributions (NICs), jumped by £3.1 billion to £17.5 billion last month – the highest ever recorded for June.
In the first three months of the financial year to date, these compulsory social contributions rose to £48 billion, up £7.5 billion year on year and marking another record.
It followed the move by Rachel Reeves in April to increase NICs for employers, which has seen wage costs soar for firms across the UK as they also faced a rise in the minimum wage in the same month.
Public sector net debt, excluding public sector banks, stood at £2.87 trillion at the end of June and was estimated at 96.3% of gross domestic product (GDP), which was 0.5 percentage points higher than a year earlier and remains at levels last seen in the early 1960s.
Darren Jones, Chief Secretary to the Treasury, said: 'We are committed to tough fiscal rules, so we do not borrow for day-to-day spending and get debt down as a share of our economy.'
But the figures will stoke fears the Government will be forced to hike taxes in the autumn budget.
Economist Rob Wood, at Pantheon Macroeconomics, said the Chancellor has a 'major problem' to overcome, 'created by U-turns on previously planned spending cuts and possible downgrades to OBR growth forecasts this autumn'.
He said: 'We estimate that the Chancellor's £9.9 billion of headroom has turned into a £13 billion hole, meaning that Ms Reeves would need to raise taxes or cut spending by a little over £20 billion in the autumn budget to restore her slim margin of headroom.
'We expect 'sin tax' and duty hikes, freezing income tax thresholds for an extra year in 2029 and a pensions tax raid – reinstating the lifetime limit on pension pots and cutting relief – to fill most of the hole.'
Shadow chancellor Sir Mel Stride said: 'Rachel Reeves is spending money she doesn't have.
'Debt interest already costs taxpayers £100 billion a year – almost double the defence budget – and it's forecast to rise to £130 billion on Labour's watch.'
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