London Daily

Focus on the big picture.
Wednesday, Jul 30, 2025

UK forced to borrow more than expected as soaring inflation bites

UK forced to borrow more than expected as soaring inflation bites

Budget deficit drops to £20.5bn in August but is offset by high interest payments on national debt

UK government borrowing increased by more than expected in August as rising inflation pushed up debt interest payments.

The Office for National Statistics said the government’s budget deficit – the gap between spending and income – dropped to £20.5bn in August from about £26bn in the same month a year earlier as Britain’s economy recovers from lockdown.

However, the latest snapshot showed that the gains from a rebound in tax receipts were offset by inflation driving up interest payments on the national debt by 84% compared with the same month a year ago.

City economists had forecast a lower August borrowing figure of about £15.6bn.


The figures come as Rishi Sunak prepares to scale back emergency Covid support schemes and set out the government’s post-pandemic tax and spending plans at next month’s autumn budget and three-year spending review.

The chancellor has indicated that inflation is a significant risk to the public finances. “We are determined to get our public finances back on track – that’s why we have set out the focused and responsible steps we are taking to keep debt under control,” he said.

Economists said the drop in the August budget deficit was driven by stronger tax receipts and lower spending on pandemic support as the economy recovers from lockdown. For the year so far, borrowing stood at £93.8bn, almost £32bn below a forecast made by the Office for Budget Responsibility in March.

Figures published by the Treasury showed businesses have now returned £1.3bn in furlough cash they did not ultimately need, with £300m paid back in the past three months as employers return more staff to work. The government has paid out a total of £68.5bn on furlough so far.

However, officials said the fallout from higher inflation eroded some of the gains. According to the latest snapshot from the ONS, interest payments on government debt rose by £2.9bn from the same month a year ago to stand at £6.3bn in August, lower than a monthly record of £8.7bn spent on servicing the national debt in June.

Reflecting the surge in government borrowing during the pandemic, public sector net debt stood at £2.2tn at the end of August, or about 97.6% of GDP, the highest ratio since March 1963.

Britain’s economic recovery from lockdown has faltered as shortages of workers and supplies weigh on growth. Inflation has also risen to the highest level in a decade. Although this is largely owing to temporary factors as the economy recovers from lockdown, some economists warn that persistent disruption from Covid and Brexit will maintain pressure on living costs.

The ONS said recent high levels of debt interest were mainly due to movements in the retail prices index (RPI) measure of inflation, to which some government bonds are pegged. The RPI jumped to 4.8% in August, up from 0.5% a year earlier to stand at the highest level in a decade.

The OBR said the rise in inflation meant debt interest for the financial year to date was £4.7bn, or 20.5%, higher than its March forecast.

However, annual debt interest payments remain at historically low levels. Even though the national debt has hit the highest GDP ratio since the 1960s, servicing costs are at a 320-year low. The OBR’s March forecast estimated debt interest would hit £24.8bn this year, £13bn lower than its forecast for 2021-22 made before Covid-19 struck.

Jo Michell, associate professor in economics at Bristol Business School, said interest payments in August amounted to less than 1% of tax received in the past 12 months, and that much of the national debt was held by the Bank of England, effectively incurring interest at Threadneedle Street’s 0.1% base rate.

“Although gilt interest payments have been pushed up by recent increases in inflation, nominal figures for individual months should be seen in the context of ongoing very low borrowing costs,” he said.

The ONS also revised upwards its estimate for borrowing in the financial year to the end of March 2021 by £27.1bn, taking the deficit to £325.1bn, in a reflection of the hit from Covid-19.

It said this was driven mainly by the inclusion of expected losses on government-backed emergency Covid loans to businesses worth £20.9bn, which it had included in the estimates for the first time. Although representing about a quarter of the total £80bn lent through Covid business loan schemes, the estimated losses are lower than the previous £27bn forecast made by the OBR.

Newsletter

Related Articles

0:00
0:00
Close
Former Judge Charged After Drunk Driving Crash Kills Comedian in Brazil
Jeff Bezos hasn’t paid a dollar in taxes for decades. He makes billions and pays $0 in taxes, LEGALLY
China Increases Use of Exit Bans Amid Rising U.S. Tensions
IMF Upgrades Global Growth Forecast as Weaker Dollar Supports Outlook
Procter & Gamble to Raise U.S. Prices to Offset One‑Billion‑Dollar Tariff Cost
House Republicans Move to Defund OECD Over Global Tax Dispute
Botswana Seeks Controlling Stake in De Beers as Anglo American Prepares Exit
Trump Administration Proposes Repeal of Obama‑Era Endangerment Finding, Dismantling Regulatory Basis for CO₂ Emissions Limits
France Opens Criminal Investigation into X Over Algorithm Manipulation Allegations
A family has been arrested in the UK for displaying the British flag
Mel Gibson refuses to work with Robert De Niro, saying, "Keep that woke clown away from me."
Trump Steamrolls EU in Landmark Trade Win: US–EU Trade Deal Imposes 15% Tariff on European Imports
ChatGPT CEO Sam Altman says people share personal info with ChatGPT but don’t know chats can be used as court evidence in legal cases.
The British propaganda channel BBC News lies again.
Deputy attorney general's second day of meeting with Ghislaine Maxwell has concluded
Controversial March in Switzerland Features Men Dressed in Nazi Uniforms
Politics is a good business: Barack Obama’s Reported Net Worth Growth, 1990–2025
Thai Civilian Death Toll Rises to 12 in Cambodian Cross-Border Attacks
TSUNAMI: Trump Just Crossed the Rubicon—And There’s No Turning Back
Over 120 Criminal Cases Dismissed in Boston Amid Public Defender Shortage
UN's Top Court Declares Environmental Protection a Legal Obligation Under International Law
"Crazy Thing": OpenAI's Sam Altman Warns Of AI Voice Fraud Crisis In Banking
The Podcaster Who Accidentally Revealed He Earns Over $10 Million a Year
Trump Announces $550 Billion Japanese Investment and New Trade Agreements with Indonesia and the Philippines
US Treasury Secretary Calls for Institutional Review of Federal Reserve Amid AI‑Driven Growth Expectations
UK Government Considers Dropping Demand for Apple Encryption Backdoor
Severe Flooding in South Korea Claims Lives Amid Ongoing Rescue Operations
Japanese Man Discovers Family Connection Through DNA Testing After Decades of Separation
Russia Signals Openness to Ukraine Peace Talks Amid Escalating Drone Warfare
Switzerland Implements Ban on Mammography Screening
Japanese Prime Minister Vows to Stay After Coalition Loses Upper House Majority
Pogacar Extends Dominance with Stage Fifteen Triumph at Tour de France
CEO Resigns Amid Controversy Over Relationship with HR Executive
Man Dies After Being Pulled Into MRI Machine Due to Metal Chain in New York Clinic
NVIDIA Achieves $4 Trillion Valuation Amid AI Demand
US Revokes Visas of Brazilian Corrupted Judges Amid Fake Bolsonaro Investigation
U.S. Congress Approves Rescissions Act Cutting Federal Funding for NPR and PBS
North Korea Restricts Foreign Tourist Access to New Seaside Resort
Brazil's Supreme Court Imposes Radical Restrictions on Former President Bolsonaro
Centrist Criticism of von der Leyen Resurfaces as she Survives EU Confidence Vote
Judge Criticizes DOJ Over Secrecy in Dropping Charges Against Gang Leader
Apple Closes $16.5 Billion Tax Dispute With Ireland
Von der Leyen Faces Setback Over €2 Trillion EU Budget Proposal
UK and Germany Collaborate on Global Military Equipment Sales
Trump Plans Over 10% Tariffs on African and Caribbean Nations
Flying Taxi CEO Reclaims Billionaire Status After Stock Surge
Epstein Files Deepen Republican Party Divide
Zuckerberg Faces $8 Billion Privacy Lawsuit From Meta Shareholders
FIFA Pressured to Rethink World Cup Calendar Due to Climate Change
SpaceX Nears $400 Billion Valuation With New Share Sale
×