UK borrowing overshoot darkens backdrop for Healey's budget

By Andy Bruce

MANCHESTER, England, Sept ‌22 (Reuters) - Britain's government borrowed ​more ​than expected in August, pushing the deficit for the financial year so far further above official forecasts and adding to a tough backdrop for finance minister ‌John Healey ahead of his first budget.

The Office for National Statistics (ONS) on Tuesday ⁠reported public sector net borrowing of £18.3 billion ($24.5 billion) in August.

The figure was above all forecasts in a Reuters poll ‌of economists which had pointed ‌to a £15.5 billion deficit.

Gilt futures sank 20 ticks after the data before recovering, and yields in the cash market rose modestly as it opened.

Healey presents his budget on October 28.

Investors ​are eyeing how he will credibly meet his fiscal-rule pledges without raising the main taxes and while promising to control spending — which Tuesday's figures showed is being pushed higher ⁠by inflation.

FISCAL HEADROOM HAS EVAPORATED

"Medium-term borrowing prospects look far more challenging than in March," said Matt Swannell, chief economic adviser to ​the ITEM Club, a consultancy.

The ONS revised up borrowing for each of the previous four months of the 2026/27 financial year, with the April-August ​cumulative deficit standing at £77.3 billion.

While that was £2.2 billion less ‌than at the same point in 2025/26, it was £8.1 billion higher than the Office for Budget Responsibility (OBR) — whose forecasts underpin Healey's tax and spending ⁠plans — had expected at this point in the year.

Borrowing for the previous 2025/26 year was revised up by £4.5 billion to £134.3 billion.

In response to the data, finance minister Emma Reynolds reiterated that the government was committed ⁠to meeting the fiscal rules with a "buffer against uncertainty".

That buffer stood at more than £24 billion in March.

"The rise ​in gilt yields since the OBR's Spring forecast has halved ... Healey's fiscal wiggle room, leaving just over £10 billion of headroom against the government's primary fiscal rules," Swannell said.

INFLATION RATCHETS UP GOVERNMENT SPENDING

An ONS statistician said ‌that while tax receipts had looked strong, this had been offset by rising government spending on goods and services and welfare benefits linked to ‌inflation.

The current budget deficit — or the difference between day-to-day spending and tax revenue and which the government ⁠must balance in 2029/30 — stood at £51.9 ‌billion in the year to ​date.

Again, that was higher than the OBR's forecast for £47.1 billion at this point in the year.

($1 = 0.7474 pounds)

(Reporting by Andy Bruce; Editing by Kate Holton and ‌Andrew Heavens)

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