UK government borrowing in August reaches £18bn, highest for the month since Covid era

UK government borrowing rose to £18bn in August, the highest level for the month since 2020, according to the Office for National Statistics (ONS). The figure exceeded analysts’ expectations and adds pressure on Chancellor Rachel Reeves ahead of November’s Budget. Despite higher tax and National Insurance receipts, increased spending on public services, welfare, and debt interest drove borrowing upward. Borrowing in the first five months of the financial year has now reached £83.8bn, £16.2bn more than the same period last year, and well above the £72.4bn forecast by the Office for Budget Responsibility (OBR).

Economists warn Reeves faces “tough choices” to meet her fiscal rules, with analysts predicting tax rises and limited spending cuts. Capital Economics estimates she may need to raise £28bn, mostly through taxes, to maintain her £10bn fiscal buffer. Government debt interest payments jumped by £1.9bn to £8.4bn, while welfare spending rose £1.1bn to £27.3bn due to inflation-linked benefits and pensions. The pound fell 0.5% against the dollar on Friday, while government bond yields rose. Meanwhile, ONS retail figures showed a 0.5% rise in August sales, helped by warm weather boosting demand for seasonal goods. However, sales volumes remain below pre-pandemic levels, with retailers warning of fresh cost pressures heading into autumn.