London, November 21, 2025
The UK government has borrowed significantly more than expected in 2025, with rising debt-interest payments and increased spending pushing borrowing billions of pounds above official forecasts, intensifying fiscal pressures on Chancellor Rachel Reeves ahead of the autumn budget.
Borrowing Overshoot and Debt-Interest Costs
Government borrowing reached £20.7 billion in June alone, surpassing economists’ estimates and marking a £6.6 billion increase from the previous year. For the April to September period, borrowing totaled £99.8 billion, exceeding the Office for Budget Responsibility’s (OBR) March projection by £7.2 billion. This substantial overshoot reflects deeper fiscal challenges facing the UK.
Debt-interest payments have surged to historic highs in 2025. In September, interest costs neared £10 billion—the highest recorded for that month—driven by inflation-linked rises in government bond yields. The total interest payments for the 2023/24 fiscal year amounted to £107 billion, accounting for nearly 9% of government expenditure and almost matching the full deficit for the year. This escalation in debt servicing constrains the government’s spending flexibility.
Rising Spending and Economic Context
Government expenditure also increased sharply. In June, total spending rose by £12.4 billion to £97.1 billion, primarily due to higher welfare payments and elevated wages in the public sector. These spending pressures, combined with increased borrowing costs, compound the fiscal strain.
The UK’s net debt has climbed to approximately £2.9 trillion, equivalent to 96.3% of GDP — levels last seen in the early 1960s. Weaker economic growth projections and the higher cost of borrowing add further complexity. Political pressures within the ruling Labour party also restrict Chancellor Reeves’ options for fiscal adjustments.
Implications for the Autumn Budget
The borrowing overshoot places substantial pressure on the upcoming autumn budget. To meet fiscal targets aimed at reducing government debt by the decade’s end, Chancellor Reeves faces limited choices: either increase taxes or implement spending cuts. However, prior reversals of welfare and spending reduction plans complicate such measures. The government has stressed a commitment to “cutting waste and improving efficiency,” but rising debt interest payments limit room for manoeuvre.
Market and Official Reactions
Despite the borrowing overshoot, bond markets have so far remained stable, indicating that investors have largely priced in the fiscal challenges. The Treasury continues to affirm its commitment to fiscal discipline and sustainable public finances, though acknowledges the difficulty of balancing priorities amid economic headwinds and political constraints.
Historical Comparisons and Outlook
The current debt levels echo those of previous high-debt periods, highlighting the enduring impact of inflation and elevated bond yields on government finances. As the Chancellor prepares the autumn budget, the government confronts a tight fiscal environment shaped by persistent borrowing above forecast, rising debt servicing costs, and heightened spending demands.
The government’s ability to curtail borrowing and steer the economy toward sustainable growth will be closely scrutinized as it navigates these pressing fiscal challenges in the months ahead.