UK Borrowing Surges in June as Inflation Drives Up Debt Costs, Adding Pressure on Reeves
Britain’s government borrowed more than anticipated in June, as elevated inflation pushed up debt servicing costs — a development likely to intensify calls for potential tax hikes from Chancellor Rachel Reeves.
According to official figures, public sector net borrowing reached £20.7 billion ($27.88 billion) last month. This exceeded economists’ median forecast of £16.5 billion in a Reuters poll and marked the second-highest borrowing total for June on record.
The number also surpassed expectations from the Office for Budget Responsibility (OBR), which had projected £17.1 billion in borrowing for the month in its March forecast. That projection came before April’s unexpectedly strong inflation reading, which led to a spike in payments on inflation-linked government bonds.
Data released Tuesday by the Office for National Statistics (ONS) revealed that interest payments on central government debt hit £16.4 billion in June — the third highest monthly figure since records began in 1997.
Fiscal Outlook Complicates Reeves’ Budget Plans
With a comprehensive budget statement expected in late 2025, Reeves faces growing fiscal challenges. Meeting her public finance targets may require new tax measures, especially after the government backed away from planned welfare spending cuts amid resistance from within Prime Minister Keir Starmer’s Labour Party.
Slow economic growth is also straining the outlook.
“Recent U-turns on welfare and persistent growth headwinds could open a gap against fiscal targets, which could require further tax rises or spending cuts in the Autumn Budget,” said Dennis Tatarkov, senior economist at KPMG UK.
Despite the pressure, Treasury Minister Darren Jones, Reeves’ deputy, reiterated the government’s commitment to its fiscal rules, particularly the pledge to fund day-to-day spending through tax revenues by the end of the decade.
Borrowing Up Sharply in First Quarter
From April to June — the first three months of the new fiscal year — the UK borrowed £57.8 billion, a 15% increase compared to the same period last year. This is the third-highest April–June deficit on record, though it remained broadly in line with the OBR’s projections for the quarter, offering some reassurance to Reeves.
One bright spot was a rise in employer-paid social security contributions, which helped strengthen public finances. National Insurance Contributions and other compulsory payments increased 18% year-on-year to £48 billion over the three-month period.
(Exchange rate: $1 = £0.7425)
