UK POSTS UNEXPECTED JULY DEFICIT BEFORE HEALEY’S FIRST BUDGET

Developing story: Borrowing revisions, gilt yields, budget decisions and OBR forecasts may change the fiscal picture before October.

The U.K. government ran an unexpected £1.8 billion deficit in July, underlining the fiscal challenge facing Chancellor John Healey as he prepares his first budget. The Guardian reported that economists had expected the month to balance because July is usually boosted by self-assessment tax receipts.

The Office for National Statistics said spending growth outpaced receipts even though self-assessment tax payments reached £17.1 billion, £1.7 billion higher than a year earlier. The result is a warning that stronger tax inflows may not be enough to offset spending pressures, debt costs and inherited commitments.

In the first four months of the financial year, borrowing reached £56.7 billion, lower than a year earlier but still £2.3 billion above the Office for Budget Responsibility forecast cited by The Guardian. That gap may limit Healey’s room for policy promises when he delivers the budget on Oct. 28.

The public-finance picture is being squeezed by global bond-market stress. Higher gilt yields increase the cost of refinancing government debt over time, and this week’s rise in long-term yields has made the fiscal backdrop more difficult. Small changes in borrowing costs can matter when debt is close to the size of the national economy.

The Guardian reported that total public debt was £2.98 trillion in July, equal to 94 percent of gross domestic product and up £96 billion from a year earlier. That debt level means the government must balance investment ambitions against markets’ tolerance for borrowing and inflation risk.

Healey said fiscal discipline is the foundation of economic stability and national security while also promising breathing space on cost-of-living pressures. The statement reflects the tension at the center of his budget: voters want relief, departments want funding and markets want credible restraint.

The economic news was not all negative. U.K. services activity strengthened in August, giving the government some evidence that growth remains resilient. But stronger activity does not automatically solve the fiscal problem if inflation, bond yields and public-sector demands continue to rise.

What is confirmed is that the U.K. posted an unexpected July deficit and borrowing remains above official forecast for the year so far. What remains unresolved is whether Healey responds with tax increases, spending restraint or a narrower fiscal buffer when he delivers his first budget in October.

Fact-check date: August 21, 2026. Article type: News. Sources: The Guardian; Office for National Statistics; Office for Budget Responsibility. Developing note: Borrowing revisions, gilt yields, budget decisions and OBR forecasts may change the fiscal picture before October.