Public sector net borrowing excluding public sector banks came in at £1.8 billion in July 2026, according to the Office for National Statistics, £0.7 billion (68.7 per cent) higher than a year earlier and a rare deficit in a month that usually books the Exchequer’s strongest tax haul. The figure matters less for its size than for its direction. With four months of the financial year on the books, borrowing is running £2.3 billion above the profile implied by the Office for Budget Responsibility’s latest forecast, and that gap is what will shape the Chancellor’s choices this autumn.
Cumulatively, the public sector borrowed £56.7 billion between April and July, which is £6.0 billion (9.6 per cent) less than in the same four months of last year. On the year-on-year comparison the picture looks like consolidation. Measured against the yardstick that counts for fiscal policy, the OBR’s in-year profile, it looks like slippage, because receipts and spending together have left borrowing £2.3 billion ahead of forecast. The Institute for Fiscal Studies has made the same point about earlier months: borrowing keeps outstripping the numbers the OBR pencilled in.
July is normally a strong month for the Exchequer because self-assessment income tax falls due on 31 July, and this year it delivered. Self-assessed income tax receipts reached £17.1 billion, £1.7 billion more than in July 2025 and the highest for any July since the monthly series began in 1999. That the month still produced a deficit says something about the other side of the ledger. Central government debt interest payable was £7.7 billion, with the capital uplift on index-linked gilts, the part that tracks the Retail Prices Index, adding £1.3 billion on its own. A record self-assessment take was not enough to offset the running cost of the debt stock.
For the autumn Budget, the arithmetic is unforgiving. The government’s fiscal rules turn on the current budget moving into balance and on underlying debt falling as a share of the economy by the end of the forecast period, and both tests leave little slack. An in-year overshoot of £2.3 billion does not by itself breach a rule, but it eats into the headroom the OBR will score against those rules when it produces its autumn forecast. The less room the numbers show, the harder it becomes for the Chancellor to avoid either tax rises or spending restraint. No Budget date has been confirmed; the exercise sits in the autumn.
The debt stock itself is still vast but no longer growing relative to the economy. Public sector net debt was provisionally estimated at £2,984.9 billion at the end of July, equivalent to 94.1 per cent of GDP, which is 0.8 percentage points lower than a year earlier. For the Debt Management Office, the read from a borrowing figure that runs ahead of forecast is straightforward. Gilt issuance is unlikely to fall as fast as a shrinking deficit would allow, and the index-linked component keeps debt interest sensitive to inflation. None of that points to lower financing costs in the near term.
It does not point to cheaper money from the Bank of England either. The Monetary Policy Committee held Bank Rate at 3.75 per cent on 29 July on a hawkish 6-3 vote, with three members arguing for an increase to 4.00 per cent. The live debate on Threadneedle Street is between holding and hiking, not between holding and cutting. A public finances print that shows debt interest still swollen by index-linked gilts reinforces the case the hawks are making rather than undercutting it. Anyone reading today’s borrowing figure as a prompt for rate relief is reading it wrong.
The demand-side backdrop is a shade brighter. GfK’s UK Consumer Confidence Index, published by NIQ in the early hours of Friday, rose three points to minus 14 in August, its highest in two years, helped by easing energy prices and a firmer view of personal finances over the year ahead. Set against public finances that are running hot, it makes for a mixed signal. Households are a little more willing to spend even as the state’s own accounts leave the Chancellor less to work with.
What to watch is the sequence that runs into the autumn. The OBR’s next forecast will convert these monthly overshoots into a single headroom number, and that number will frame the Budget. Between now and then, each public finances print either narrows or widens the gap the Chancellor has to close. On July’s evidence, with even a record self-assessment haul unable to keep the month in surplus, the gap is not closing.
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