UK Borrowing Falls, Easing Pressure on Healey

UK government borrowing fell to £16 billion in June, coming in below forecasts on new Chancellor John Healey's first full day in the role.

The figure was £7.9 billion lower than the same month last year and roughly £300 million below the Office for Budget Responsibility's prediction, according to the Office for National Statistics.

Healey Calls Fiscal Control His Duty

Healey, appointed chancellor by new Prime Minister Andy Burnham on Monday, said "fiscal control" was his "first duty" in the role.

"The Prime Minister and I have talked about how we will work in lockstep to meet the fiscal rules with a buffer against uncertainty and how we'll make life more affordable for working people right across the UK," he said.

Dennis Tatarkov, senior economist at KPMG UK, said the June figure offered only partial relief, noting borrowing for the financial year to date still sits £2.7 billion above the OBR's March projections.

Total Debt Remains Historically High

Despite June's improvement, the ONS said total public sector debt remains high by historical standards and close to the annual value of the UK economy.

So far this financial year, borrowing has reached £57.6 billion, down £3.7 billion from the same period last year but still above forecast.

The government paid £11.8 billion in debt interest in June, nearly a third lower than a year earlier, though still the fourth-highest June total on record.

VAT Cut Funded By Cancelled Scheme

Burnham's government used the fiscal breathing room to confirm its first major policy: cutting VAT on domestic electricity bills from 5% to zero starting October 1.

The cut is expected to save a typical household about £45 a year and cost roughly £850 million, funded by scrapping the digital ID programme, which had been budgeted at £1.8 billion over three years.

Shadow Chancellor Sir Mel Stride argued Labour had "maxed out the nation's credit card," while former Chief Secretary to the Prime Minister Darren Jones — dismissed in Monday's reshuffle — publicly questioned whether the electricity VAT cut was properly funded, pointing to Office for Budget Responsibility documents that flagged the digital ID programme as unfunded.

First Quarter Still Runs Hot

June's improvement doesn't erase the wider trend. Borrowing across April, May and June — the first quarter of the financial year — came in at £56.7 billion, still £2.7 billion above the OBR's own March projection and equivalent to 1.9% of GDP, the 10th-highest opening quarter since comparable records began in 1993.

Under the broader measure Reeves introduced last October — public sector net financial liabilities — total debt stood at £2.7 trillion at the end of June, or 84.5% of GDP, a figure that puts any near-term giveaway under immediate scrutiny regardless of one month's improvement.

Bank Of England Decision Looms

The unemployment rate held steady at 4.9%, with regular wage growth unchanged at 3.4% annually, though private-sector wage growth dipped below 3% for the first time since 2020.

Yael Selfin, chief economist at KPMG, said the subdued wage figures made it more likely the Bank of England would hold interest rates at 3.75% when it meets next week.

"Weak hiring activity is continuing to weigh on workers' bargaining power, limiting upward pressure on wages," Selfin said, adding that households face a renewed squeeze on living standards later this year as energy costs feed through to bills.

The yield on 10-year UK government bonds briefly rose above 5% after Burnham's initial comments on fiscal flexibility, before settling back to 5.01%, a reminder of how closely markets are watching the new government's spending signals ahead of the autumn Budget.

TheTrendsWire's Take

One good month of data is not a fiscal strategy, and Healey knows it. The VAT cut is popular and cheap by Whitehall standards, but funding it by cancelling a programme that was already flagged as underfunded doesn't create new headroom — it just moves the argument to the autumn Budget. Watch the gilt market, not the ONS press release, for the real verdict on whether investors believe this government's numbers add up.

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