The chancellor’s ability to steady volatile gilt markets has been weakened after the UK borrowed £18.3bn in August, a larger sum than both official forecasters and City economists expected. That outturn expands the financial-year deficit and narrows the space Treasury officials can use to argue markets will not be saddled with an unsustainable borrowing path ahead of next month’s budget.
Office for National Statistics data show public sector net borrowing in August was £2.9bn higher than in August 2025 and £3.5bn above the Office for Budget Responsibility’s early estimate. Taken together with earlier months, borrowing for the financial year so far now stands at £77.3bn, which is £8.1bn above the OBR’s forecast. City economists had been expecting about £15.6bn of borrowing for August.
The figures follow an unexpected £1.8bn shortfall in July, when analysts had anticipated a balanced month, adding to investor unease about the direction of UK public finances. That unease has shown up in the UK’s sensitivity to recent rises in gilt yields amid broader global market volatility. Although the cost of financing UK debt has eased over the last week, the Treasury must still demonstrate a credible plan to reduce reliance on heavy borrowing while protecting welfare and other public spending.
Martin Beck, chief economist at WPI Strategy, said, “Today’s public finance figures are another unwelcome setback for the government ahead of next month’s budget.” The Treasury’s chief secretary, Emma Reynolds, defended the government’s fiscal approach, saying it was committed to boosting economic growth, “but we can only deliver that growth with fiscal discipline.” She added, “At a time when debt interest costs billions of pounds that could otherwise be spent on improving lives, we must always know where the money is coming from to pay for public services.”
Conservative party Treasury spokesperson Andrew Griffith criticised Labour’s handling of the public finances, saying, “They are borrowing so much they’ve overshot the OBR forecast by an extra £8bn of debt,” and, “It takes a rare fiscal incontinence to both have the highest tax take in history and see borrowing still shoot up.” The International Monetary Fund has urged western governments to tighten control over public finances to reassure lenders.
With early-year borrowing estimates flagged by the OBR as provisional and subject to revision, next month’s budget will be the decisive moment for the government to set out how it intends to curb borrowing while supporting growth. Markets and opposition MPs will treat the budget as the test of whether the Treasury can restore confidence without sharply reversing spending plans.
