UK borrows more than expected in July as Healey prepares for first Budget

The government exceeded expectations by borrowing £2.3bn more than forecast in July, according to official figures released as Chancellor John Healey prepares to unveil his first Budget. The Office for National Statistics (ONS) reported that borrowing stood at £1.8bn in July, a significant two-thirds increase compared to July 2022.

Economists cautioned that this figure will limit the scope for Chancellor Healey and Prime Minister Andy Burnham to implement cost of living measures in the Budget, set for October 27th. Healey has pledged to maintain fiscal discipline at the Budget, adhering to previously set spending rules. He referenced his predecessor Rachel Reeves' fiscal principles, which commit the government to funding all day-to-day spending through tax receipts by the end of the decade.

Responding to the borrowing data, Healey stated, "We are cutting the deficit faster than any other G7 economy, while giving people a bit of breathing space with cost of living pressures and focusing support to get young people into work." The government's borrowing in July was £16bn lower than in June, driven by a surge in self-assessed income tax receipts.

However, the increase in borrowing was attributed to higher welfare spending, including benefits and other payments like the state pension. Social payments were £2bn higher than the same period in 2022. ONS data revealed that borrowing from April to July, the first four months of the fiscal year, totaled £56.7bn, slightly lower than last year but £2.3bn higher than OBR forecasts.

Senior economist Ashley Webb of Capital Economics noted that the figure adds to a series of adverse economic developments, suggesting little room to increase borrowing in the upcoming Budget. He warned that the overshoot in borrowing will likely worsen as economic growth slows and the government rolls out more cost of living support measures.

MHA's Joe Nellis added that the figures won't prevent the need for difficult decisions in the October Budget, such as finding additional tax revenue, tightening public sector spending control, or making other adjustments to meet fiscal rules. Failure to do so could unsettle financial markets and potentially raise the cost of government borrowing further.

ONS data also showed that Britain's overall debt has reached approaching £3tn, growing by £127.2bn year-over-year. The Conservatives accused Labour of leaving ordinary families to cover the bill, while Shadow Chancellor Mel Stride pointed out that Labour's spending would cost more in interest than the combined budgets for defense, police, and prisons.