Borrowing continues to climb as fiscal squeeze tightens ahead of Autumn Budget
Professor Joe Nellis October 21st 2025
The UK’s public finances took another hit in September as public sector net borrowing rose by £20.2bn, another reminder that the Chancellor heads into next month’s Budget with little fiscal room to manoeuvre, if she continues to stick to her manifesto commitments.
For the first six months of the financial year, total borrowing now stands close to £99.8bn, 13.1% higher than at the same point last year and on course to overshoot the OBR’s March forecast.
The rise reflects a toxic mix of high debt interest payments, still-inflated public sector wage costs, and weak tax receipts from income, property, and corporate profits. Meanwhile, sluggish GDP growth is keeping revenue subdued, even as spending on health, education, and local services remains under pressure.
Public sector net debt now hovers around £2.75 trillion and at 95.3% of GDP — nearing ever-closer to 100% of GDP and at the highest level in over six decades. The last time the figure was over 100% was in March 1961 — eighteen months before the Beatles released their first single.
Debt servicing costs continue to bite, with inflation-linked bond payments alone costing the Treasury an estimated £9 billion last month and around £107 billion for the year.
"A small consolation to the Chancellor is that the value of gilts has dropped in the past week and sits lower than some of its highs across 2025. This will curb some of the worst impacts of high debt servicing costs. In part, this comes as the Chancellor has made clear that tax rises are coming in November. While not the news many wanted to hear, her statements do provide some certainty and reassure the financial markets that the fiscal rules will be maintained, providing confidence that the stability of the economy won’t be put at risk by a looser fiscal strategy."
With the Autumn Budget fast approaching, today’s figures set the stage for a politically charged balancing act. The government is under pressure to stimulate economic growth, but the deteriorating fiscal outlook leaves little headroom under the existing rules.
Given the circumstances, the Chancellor will likely focus on targeted investment incentives and productivity-boosting measures, hoping to maintain stability while offsetting some of the negative effects of tax rises on growth prospects.
