Andy Burnham’s first full day as prime minister brought a rare piece of fiscal relief: the UK borrowed £16bn in June, £7.9bn less than a year ago and slightly below the £16.3bn forecast by the government’s official forecaster, the Office for Budget Responsibility.
The better-than-expected figure, published by the Office for National Statistics on Tuesday, offered the new Labour leader a sliver of breathing room as he began setting out measures to cut living costs for households. But the improvement came with a stark caveat: total national debt remains close to £3tn, nearly the size of the entire UK economy.
“UK borrowed £16bn in June, below forecast, but total debt near £3tn as new PM Burnham faces fragile finances.”
“It’s a rare piece of good news for the new prime minister and his new chancellor John Healey,” said Ruth Gregory, deputy chief UK economist at Capital Economics. “Overall, there’s no escaping the fact that the public finances are fragile and that there is limited scope for extra borrowing.”
Borrowing for the current financial year so far has reached £57.6bn – £2.7bn above the OBR’s projection, despite being £3.7bn lower than the same period last year. June’s improvement was driven by higher revenues from income tax and VAT, while interest payments on inflation-linked debt fell. The government paid £11.8bn in debt interest in June, nearly a third less than a year ago, though the ONS noted it was still the fourth highest June total on record.
Burnham and Healey have both pledged to stick to the fiscal rules inherited from former chancellor Rachel Reeves, though Burnham said on Monday he would use “any flexibility within them” to help with policy changes. In a statement, Healey insisted “fiscal credibility is the bedrock for economic stability and for national security.”
Separate ONS data showed the unemployment rate held steady at 4.9% for the March-to-May period, with the labour market described as “relatively steady”. Regular earnings growth – excluding bonuses – remained unchanged at an annual pace of 3.4%. But for the private sector, wage growth fell below 3% for the first time since 2020, a sign that workers’ bargaining power is weakening.
Yael Selfin, chief economist at KPMG, said the “subdued” wage growth made it more likely that the Bank of England would keep interest rates on hold at 3.75% when it meets next week. “Weak hiring activity is continuing to weigh on workers’ bargaining power, limiting upward pressure on wages,” she added.
The figures leave Burnham and Healey navigating a narrow path: borrowing is down but debt remains enormous, wage growth is cooling but the labour market is static. With the OBR already forecasting a tighter squeeze ahead, the new administration’s room for manoeuvre is shrinking fast.