June’s Borrowing Figures: A Rare Glimmer of Hope, But Challenges Remain

The latest borrowing figures from the UK government show a welcome respite for the new Prime Minister and his team. The £16 billion borrowed in June was slightly lower than expected, with analysts attributing this to higher revenues from income tax and VAT, as well as reduced interest payments on inflation-linked debt.

This rare piece of good news has been seized upon by the government, who are keen to demonstrate their commitment to cutting living costs for households. The decision to cut VAT on household electricity bills from 5% to zero from October is seen as a key policy announcement that will be closely watched by voters. Critics have already begun questioning the funding of this measure, with some accusing the government of announcing an unfunded tax cut.

The total debt currently stands at nearly £3 trillion, which is almost as much as the value of all the goods and services produced in the UK in a year. The broader public sector net financial liabilities (PSNFL) stand at £2.7tn at the end of June 2026. These numbers put the borrowing figures into context.

The challenges facing the new government are significant, and it remains to be seen whether they will be able to make good on their promises without compromising the UK’s fiscal credibility. As James Smith, chief UK economist at ING, noted, the fact that borrowing is still running ahead of the Office for Budget Responsibility’s (OBR) projections is a reminder of the difficulties that lie ahead.

The OBR’s forecast suggests that borrowing will continue to be a challenge in the coming months. The total debt is expected to reach £57.6bn by the end of the current financial year, down from the same period last year but still higher than predicted. The new government will need to make tough choices if they are to get the public finances back on track.

Weaker-than-expected wage growth could be a key area where the government can make a difference. Regular earnings have fallen below 3% for the first time since 2020, which will likely continue to weigh on workers’ bargaining power and limit upward pressure on wages. As Yael Selfin, chief economist at KPMG, noted, this weak wage growth makes it more likely that the Bank of England will keep interest rates on hold.

Higher energy costs are set to feed through to household bills in the second half of the year, which could have a negative impact on living standards. The coming months will be a critical test of the new government’s ability to deliver on their promises and get the public finances back on track.