UK Government Borrowing Hits Second-Highest Level on Record

Mounting debt and rising interest costs add pressure ahead of potential autumn tax hikes

Record-Breaking Borrowing Raises Alarm

The UK government’s borrowing for June soared to £20.7 billion — the second-highest figure for that month since records began in 1993. According to the Office for National Statistics (ONS), the unexpected surge was driven by soaring interest payments and increased spending on public services.

This borrowing figure was nearly £4 billion higher than economists had forecast, reflecting the widening gap between tax revenues and government expenditure.

Key Figures and Financial Pressures

• Government borrowing reached £20.684 billion in June 2025.
• This is the second-highest June figure on record, behind June 2020 during the height of the COVID-19 crisis.
• Borrowing was more than £6 billion higher than the same period last year.
• Interest payments were the second-highest for any June since 1997.

Market Reaction

Investor concerns over public finances pushed up UK gilt yields:

• 10-year gilt yields climbed to 4.645%, reflecting a loss of confidence in the UK’s fiscal position.
• The UK stock market also reacted negatively, dragged down by rising debt concerns.

Russ Mould, investment director at AJ Bell, stated:

“The market’s reaction is a clear signal that investors are unimpressed with the UK’s fiscal health.”

Political and Economic Implications

Chancellor Rachel Reeves has pledged to reduce national debt and balance the budget by 2030 under her strict fiscal rules. But the latest borrowing figures suggest this goal is becoming increasingly difficult to achieve without raising taxes or cutting spending.

Analysts Expect Autumn Tax Hikes

Pantheon Macroeconomics warned that tax rises are increasingly likely:

• Autumn Budget could include “backloaded” tax increases.
• Potential measures include:
  • Freezing income tax thresholds for longer
  • Reinstating the lifetime pension allowance
  • Cuts to pension tax relief
  • Increases in “sin taxes” (on alcohol, tobacco, etc.)

Rob Wood, Chief UK Economist at Pantheon, estimates the budget shortfall is widening rapidly:

“The Chancellor’s previous £9.9 billion of headroom has now turned into a £13 billion hole.”

To bridge the gap, the government may need to raise or save over £20 billion in the upcoming Autumn Statement.

Treasury Response

Darren Jones, Chief Secretary to the Treasury, reiterated the government’s commitment to fiscal responsibility:

“We will not borrow for day-to-day spending and remain focused on reducing debt as a share of the economy.”

He emphasised that sound public finances are essential for long-term investment and stability.

Outlook for Investors and Consumers

Rising government borrowing may lead to:

• Higher taxes impacting consumer spending
• Potential pressure on the Bank of England to delay interest rate cuts
• Reduced investor confidence in UK assets

If Chancellor Reeves opts for sin taxes and pension reforms, sectors like alcohol, tobacco, and wealth management could be directly affected.

Conclusion

With government borrowing reaching alarming levels, the stage is set for tough choices in the autumn. Tax hikes, spending cuts, or both may be necessary to restore fiscal credibility. Investors and households alike should prepare for policy changes that could impact disposable incomes and market sentiment.

Sources: (BBC.co.uk, SKY.com)