UK public sector borrowing jumps again deepening the Chancellor’s worries

Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm.

UK net public sector borrowing rose significantly in August to £17.96bn, piling extra pressure on the Chancellor as preparations intensify for the Autumn Budget.
 

The overshoot was driven by persistently high debt interest costs on inflation-linked gilts - 30-year gilts reached their highest in almost 30 years in August. The debt-inflation costs are now projected at over £110 billion in 2025-26. Higher borrowing is also the result of rising welfare spending and higher public sector pay settlements.

As the economy continues to falter, without any consistent and sustained growth, increased government borrowing makes the Chancellor’s fiscal headroom even slimmer ahead of the Budget on 26th November. This simply cannot go on. A government cannot continue to spend beyond its means while espousing belief in ‘fiscal stability,’ without evoking the wrath of the financial markets.