21st July 2026
The latest Public Sector Finances bulletin from the Office for National Statistics (ONS) shows a significant improvement in the UK’s fiscal position for June 2026.
Borrowing fell sharply compared with last year, driven primarily by lower inflation-linked debt interest payments. However, despite this welcome short-term relief, the UK’s overall debt level remains historically high, raising important questions about long-term sustainability.
Key Highlights at a Glance
Borrowing in June 2026: £16.0 billion — down 33% from June 2025
Debt interest payments: £11.8 billion — down 31% year-on-year
Year-to-date borrowing: £57.6 billion — still above OBR forecasts
Net debt: £2.99 trillion (94.9% of GDP) — near a 60-year high
Current budget deficit: £11.75 billion
Cash requirement: £19.1 billion
Borrowing Falls Sharply in June
June delivered one of the strongest monthly improvements in recent fiscal data. Borrowing fell to £16.0 billion, a reduction of £7.9 billion compared with June 2025.
What drove the improvement?
Lower inflation reduced the cost of servicing RPI-linked government debt
Higher tax receipts boosted government income
Slightly lower overall spending helped narrow the gap
Debt interest payments — often the most volatile component — dropped to £11.8 billion, still the fourth-highest June figure on record but significantly lower than last year’s inflation-driven spike.
April–June: Borrowing Still Historically High
Despite June’s improvement, borrowing for the financial year to date remains elevated at £57.6 billion. This is:
6% lower than the same period last year
£2.7 billion higher than the OBR’s forecast
The 10th highest April–June total since records began
Borrowing so far equals 1.9% of GDP, slightly below last year’s 2.1%, but still high by historical standards.
Debt Nears the Size of the UK Economy
Public sector net debt (excluding public sector banks) reached £2.99 trillion, equivalent to 94.9% of GDP.
To put this in context:
The UK last saw debt at this level in the early 1960s
Debt has risen steadily since the 2008 financial crisis
High inflation in 2022–2023 accelerated interest costs
Debt is now close to the size of the entire UK economy
This raises important questions about long-term fiscal sustainability — explored later in this article.
Current Budget Deficit & Cash Requirement
The current budget deficit — covering day-to-day spending — was £11.75 billion in June.
The central government net cash requirement was £19.1 billion, reflecting continued reliance on borrowing to fund operations.
A Volatile Year for Public Finances
June’s improvement follows a turbulent pattern earlier in 2026:
May 2026: Borrowing surged to £23.3 billion — the second-highest May on record
March 2026: Borrowing fell to its lowest March level since 2022
Inflation swings continue to influence debt interest costs month-to-month
This volatility underscores how sensitive the UK’s fiscal position is to inflation and gilt market conditions.
Deep Dive: UK Debt Sustainability
The UK’s debt level — nearly 95% of GDP — raises long-term sustainability concerns. Several structural factors contribute:
1. High proportion of inflation-linked debt
Around 25% of UK gilts are linked to RPI. When inflation rises, interest payments spike — as seen in 2022–2023.
2. Ageing population
More pension spending and healthcare costs increase long-term fiscal pressure.
3. Sluggish productivity growth
Lower productivity limits tax revenue growth and economic expansion.
4. Persistent budget deficits
The UK has run deficits in 20 of the last 22 years, causing debt to accumulate steadily.
What does this mean?
Even though June’s borrowing fell, the UK’s long-term fiscal trajectory remains challenging. Without stronger economic growth or structural reforms, debt is likely to remain high for decades.
OBR Forecast Comparison: Why Borrowing Is Above Expectations
The OBR forecasted lower borrowing for April–June than the ONS reported. The difference stems from:
Provisional public corporation data
Some corporation-level spending and revenue figures were higher than expected.
Lower-than-forecast tax receipts in April
April’s tax intake was weaker than anticipated, widening the early-year deficit.
Higher-than-expected departmental spending
Certain departments saw spending increases not fully reflected in OBR projections.
Debt interest volatility
Even with lower inflation, interest payments remain unpredictable.
For a more detailed comparison, you can explore:
OBR forecast comparisons
Inflation’s Impact on Debt Interest
Inflation has been the single biggest driver of debt interest volatility over the past two years.
How inflation affects debt interest:
RPI-linked gilts rise directly with inflation
Index-linked payments can add billions in a single month
Higher Bank Rate increases interest on short-term borrowing
Lower inflation (as seen in June) reduces pressure quickly
In June 2026, falling inflation reduced interest payments by 31%, delivering the biggest improvement in the public finances.
For more detail, explore:
Impact of inflation on debt interest
What This Means for the UK Economy
June’s figures offer a welcome sign that inflation easing is helping stabilise public finances. However:
Debt remains historically high
Borrowing is still above forecasts
Long-term pressures persist
Fiscal policy remains constrained
The UK’s fiscal outlook will depend heavily on:
Future inflation trends
Economic growth
Government spending decisions
Global interest rate movements