UK Borrowing Hits £24.5bn as Healey Faces Budget Pressure 2026

UK government borrowing rose to £24.5bn last month, a higher-than-expected deficit that increases pressure on Chancellor John Healey ahead of his first budget next Wednesday. The figure, reported by the Office for National Statistics (ONS), was £1.9bn above the Office for Budget Responsibility's (OBR) forecast and up from £17bn in August.

The surge was driven largely by a record £10.9bn in debt interest payments—the highest September figure since records began and only the eighth time monthly debt interest has exceeded £10bn. Rising inflation, partly due to the Iran war pushing up energy costs, has increased payments on government bonds linked to the retail prices index (RPI). The ONS estimates this added £4bn to September's debt interest costs alone.

Why Government Borrowing Matters for Healey's Budget

Healey has committed to sticking to fiscal rules set by his predecessor, which require debt to fall as a share of GDP by the end of the forecast period. The latest figures show total government debt has hit £3tn for the first time, although as a share of the economy it has fallen to 94% from 95% a year ago. This slight improvement may offer some room for manoeuvre, but the higher-than-expected borrowing underscores the challenge of balancing spending commitments with fiscal discipline.

In the financial year to date, public sector net borrowing is £97.8bn—£4.4bn lower than last year but still £6bn higher than the OBR expected. This overshoot could force Healey to announce tax rises or spending cuts in the budget to keep the public finances on track.

The Impact of Rising Debt Interest Costs

The £10.9bn debt interest bill reflects the sensitivity of government finances to inflation. Around a quarter of UK government bonds are index-linked, meaning payments rise with RPI. With inflation climbing in recent months, these payments have ballooned. The Iran war has been a key factor, driving up energy prices and feeding through to higher inflation.

This vulnerability means that even if borrowing falls in other areas, debt interest can quickly eat into fiscal headroom. The OBR has previously warned that rising interest rates and inflation pose a significant risk to the public finances.

What to Watch in Healey's First Budget

Next Wednesday's budget will be a critical test for Healey. He must demonstrate that he can manage the public finances while supporting economic growth. Key areas to watch include:

• Whether the Chancellor announces new fiscal rules or adjusts existing ones to allow more borrowing for investment.
• Any changes to taxation, particularly on wealth or capital gains, to raise revenue.
• Spending plans for public services, especially in health and education.
• Measures to boost growth, such as infrastructure investment or tax incentives for businesses.
• The OBR's updated forecasts for growth and borrowing, which will determine whether the fiscal rules are met.

The borrowing figures come amid broader economic challenges. The UK economy has slowed, with job vacancies declining and borrowing falling less than expected in recent months. These trends could limit the Chancellor's options.

Comparison of Borrowing and Debt Figures

Expert Reactions and Political Context

Economists have warned that the overshoot in borrowing leaves Healey with little room for error. The Institute for Fiscal Studies has noted that the Chancellor's fiscal headroom is likely to be small, meaning any new spending commitments would need to be funded by tax rises or cuts elsewhere.

Politically, Healey is under pressure from within his party to increase investment in public services, while fiscal conservatives urge restraint. The budget will be a balancing act.

The global backdrop adds further uncertainty. The IMF has sounded the alarm on rising government borrowing costs worldwide, and UK borrowing costs have hit their highest since the 2008 financial crisis. This makes it more expensive for the government to service its debt.

FAQ

The borrowing figures come as the UK economy shows signs of slowing. Recent data indicated that UK economy slows as borrowing falls and job vacancies decline, adding to the challenges facing the Chancellor.

Healey has been urged by some economists to be bold on borrowing for growth, arguing that investment in infrastructure and skills could boost long-term growth. However, others warn that the IMF has sounded the alarm on rising government borrowing costs, highlighting the need for fiscal prudence.

The budget will also be watched closely for its impact on business and consumer confidence. With government borrowing costs hitting their highest since the 2008 crisis, the Chancellor must tread carefully to avoid spooking markets.

As Healey prepares to deliver his first budget, the latest figures show UK borrowing falls less than expected, underscoring the tight fiscal position. The coming days will be crucial in shaping the economic outlook.