MediumIV Macro Policy & Sovereign Debt22 September 2026, Tuesday
UK borrowing rises to 18.3 billion pounds in August as debt interest sets a record at 8.8 billion
According to ONS data published on 22 September, public sector net borrowing reached 18.3 billion pounds in August; that is 3.5 billion pounds above the OBR forecast and the second-highest August figure on record.
According to data released by the Office for National Statistics on 22 September 2026, UK public sector net borrowing was 18.3 billion pounds in August. The figure is 2.9 billion pounds, or roughly 19.0%, higher than in August 2025 and 3.5 billion pounds above the forecast of the Office for Budget Responsibility (OBR). Central government debt interest rose to 8.8 billion pounds in August, the highest August value since monthly records began in 1997; 2.1 billion pounds of that stemmed from the 0.3% rise in the retail prices index feeding through to the principal of index-linked gilts. The current budget deficit, which covers day-to-day spending, came in at 8.0 billion pounds, up 0.8 billion pounds on a year earlier.
In the first five months of the fiscal year (April to August) cumulative borrowing reached 77.3 billion pounds. Although that is 2.2 billion pounds lower than in the same period last year, it is 8.1 billion pounds above the OBR forecast and equivalent to 2.5% of national income. At the end of August public sector net debt stood at 2,985.5 billion pounds, just below 3 trillion pounds, an annual increase of 78.5 billion pounds. The debt-to-national-income ratio, helped by nominal growth, fell 1.3 points from a year earlier to 93.8%.
The data come at a moment when long-term borrowing costs dominate. On 1 September 2026 the 30-year gilt yield reached 5.89%, its highest since March 1998, and the 10-year gilt yield rose to 5.223%, a level not seen since June 2008. Ahead of the budget that Chancellor John Healey will present on 28 October, the gap between the interest burden and tax revenues sits at the centre of the debate over spending and taxation. Figures circulating before the budget on how far fiscal headroom has narrowed could not be independently verified.
Talay assessment
Bottom line
The August data show that the UK's problem is growing less from spending lines than from the debt interest burden: of 8.8 billion pounds of interest paid in a single month, 2.1 billion comes directly from inflation-linked bonds. Borrowing running 8.1 billion pounds above the OBR forecast since the start of the year strengthens the likelihood of additional tightening on the tax or spending side in the 28 October budget. The most likely path is that revenue-raising measures dominate.
Likely effects
- The gilt marketNegativeWeeks
Borrowing overshooting the OBR forecast by 3.5 billion pounds lifts supply expectations; with the 30-year yield having reached 5.89%, demand sensitivity increases for issuance at the far end of the curve.
- Fiscal headroomNegative1–6 months
Borrowing of 77.3 billion pounds between April and August and a deficit ratio of 2.5% put spending caps or tax increases on the table for the 28 October budget; public investment is the first line to be squeezed.
- Türkiye's external borrowingNegative1–6 months
Far-end yields in advanced economies settling above 5% raises the premium demanded on emerging market eurobond issues; Türkiye's cost of rolling over external debt rises on that ground.
- Index-linked debt riskNegative6 months+
The fact that 2.1 billion pounds of the interest bill comes from the 0.3% rise in the retail prices index shows that inflation surprises feed into the budget directly and without delay.
Possibilities, ranked
- 1A revenue-raising package in the October budget55%
Borrowing continues to run 8.1 billion pounds above the OBR path and the 28 October budget balances the books mainly through taxation.
Watch: The share of tax measures in total tightening in the 28 October budget text and the OBR's updated borrowing forecast
- 2Consolidation weighted towards spending cuts30%
The government avoids tax increases and cuts day-to-day spending and the investment budget; the debt interest burden continues to run close to the August level of 8.8 billion pounds.
Watch: Pre-budget statements on departmental spending caps and revisions to capital budget lines
- 3Relief as yields retreat15%
Inflation expectations fall, the 30-year gilt yield drops clearly below 5.89% and a lighter interest burden eases the squeeze on the budget.
Watch: The 30-year gilt yield falling below 5.50% and monthly debt interest payments easing below 8.8 billion pounds
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- August net borrowing▲ +£2.9bn
- Debt interest payments▲ £8.8bn
- 30-year gilt yield▲ 5.89%