The UK borrowed £1.8 billion in July, about £700 million more than in the same month last year, according to figures published on Friday by the Office for National Statistics. Most economists had expected borrowing of roughly zero for the month, and the Office for Budget Responsibility had forecast a surplus of around £500 million.
Why July is supposed to be a good month
Public sector net borrowing is simply the gap between what the government spends and what it takes in, filled by issuing debt. It swings a great deal month to month, which is why a single reading rarely tells you much on its own.
July is the exception, and that is what makes this figure awkward. Self-assessment income tax falls due at the end of January and the end of July, so July is one of two months in the year when the Treasury collects an unusually large amount of money at once. It is normally a month of surplus or something close to it. Borrowing in July is the fiscal equivalent of being overdrawn on payday.
The receipts themselves were not the problem. Income tax brought in a record £17.1 billion for the month. Spending simply grew faster: social benefit payments rose by about £2 billion against July last year, and debt interest costs climbed by around £700 million to £7.7 billion.
That last figure is the one that connects to the wider story in bond markets. Debt interest is not a discretionary line a chancellor can trim. It is set by the size of the debt stock and by the yields investors demand, and yields across the developed world have been rising.
Four months into the financial year
Cumulative borrowing since April now stands at £56.7 billion. That is an improvement on the equivalent period last year, but it runs ahead of the trajectory the OBR set out, and the gap between forecast and outturn is what determines how much room a chancellor has when the next set of official projections is produced alongside the Budget.
What it means for October 28
John Healey became Chancellor in July, appointed by Prime Minister Andy Burnham after Keir Starmer's resignation, and will deliver his first Budget on October 28. He has said it will be built on fiscal discipline and will meet the government's fiscal rules.
Those two commitments, taken together with figures like Friday's, narrow the available options. If borrowing continues to run above forecast, the arithmetic points toward either higher taxes, slower spending growth, or a revision to the rules themselves, and a chancellor who has publicly committed to the third being off the table is left with the first two.
The counter-argument, which the Treasury and sympathetic economists both make, is that one month is one month. July's overshoot is measured in hundreds of millions against a budget measured in hundreds of billions, receipts are volatile, and the ONS routinely revises these numbers. On that reading the figure is noise rather than signal.
Both things can be true. A single month does not settle whether the public finances are on track, but it does shape the political weather in which a new chancellor writes his first Budget, and the weather in late August is not what Healey would have chosen.
