The UK government borrowed £16bn in June, slightly less than the £16.3bn forecast by the Office for Budget Responsibility, offering a sliver of good news for Prime Minister Andy Burnham and Chancellor John Healey as they begin their tenure. The figure was about £7.9bn lower than the same month last year, driven by higher tax receipts. However, the Office for National Statistics warned that total debt remained high by historical standards, nearly matching the annual value of the UK economy.
Ruth Gregory, deputy chief UK economist at Capital Economics, described June's borrowing figure as "a rare piece of good news" for the new leadership. But she quickly added: "Overall, there's no escaping the fact that the public finances are fragile and that there is limited scope for extra borrowing."
“UK government borrowing fell to £16bn in June, lower than forecast, but total debt remains historically high, economists warn.”
The fragility was underscored by a spike in the yield on 10-year government bonds, which briefly rose above 5% on Monday afternoon after Burnham said he would use "any flexibility" within existing fiscal rules to help with policy changes. The yield slipped back to 5.01% by Tuesday morning, but the move highlighted investor sensitivity to any hint of looser spending.
So far this financial year, borrowing has reached £57.6bn, down £3.7bn from the same period last year but £2.7bn above the OBR's forecast. James Smith, chief UK economist at ING, told the BBC's Today programme that this overshoot was "a reminder of the challenges that the new chancellor and the new prime minister face". He warned of a "difficult picture" at the autumn Budget, with "lots of tough choices to be made".
Chancellor John Healey said in a statement that "fiscal credibility is the bedrock for economic stability and for national security". Both he and Burnham have pledged to stick to the fiscal rules set by former chancellor Rachel Reeves. But the new prime minister's suggestion of using flexibility alarmed some markets.
Shadow chancellor Sir Mel Stride accused Labour of having "maxed out the nation's credit card and sent borrowing soaring". He added: "If Andy Burnham and John Healey are really serious about the future of our economy then they must get borrowing under control."
Other data showed the unemployment rate unchanged, with the ONS describing the labour market as "relatively steady". But with total debt already at historic highs and borrowing still running ahead of forecasts, the political battle lines are drawn: can Burnham and Healey maintain fiscal discipline while delivering on their promises? The autumn Budget will provide the first big test.