Key facts
- UK government borrowing in July was £1.8bn, exceeding market expectations.
- Strong tax receipts were insufficient to offset increased spending.
- Public sector debt was £2.98tn, or 94% of GDP.
- Debt interest payments totaled £7.7bn in July.
- Chancellor John Healey is preparing for his first budget on October 28.
The UK government recorded an unexpected £1.8bn deficit in July, exceeding market expectations for a balanced budget and highlighting fiscal challenges for the new Chancellor, John Healey. Despite strong tax receipts, including self-assessment income tax payments, spending growth outpaced income, leading to the shortfall. This figure comes as Healey prepares to announce his first budget on October 28.
In the first four months of the financial year, the cumulative deficit stood at £56.7bn, which is lower than the previous year but £2.3bn ahead of the Office for Budget Responsibility's forecast. Total public debt reached £2.98tn, or 94% of GDP, an increase of £96bn on the year, aligning with the government's plan to borrow for infrastructure investment.
Analysts anticipate that the public finances may be more challenging than initially forecast in March, partly due to factors like the war in Ukraine, higher inflation, slower growth, and rising bond yields. Healey emphasized fiscal discipline and commitment to meeting fiscal rules, stating the government is cutting the deficit faster than other G7 economies while providing cost of living support and focusing on employment.
Debt interest payments alone amounted to £7.7bn in July. The ONS noted that borrowing was slightly higher this month compared to July of the previous year. Economists suggest that while Healey may not need immediate tax hikes for short-term fiscal needs, future spending commitments on defense and cost of living support could necessitate them.