UK June borrowing falls to £16bn as new government faces tight fiscal limits
A slight undershoot in June borrowing offers little real relief for Prime Minister Andy Burnham as cumulative debt overshoots forecasts and cooling wage growth points to a Bank of England rate hold.
The UK government borrowed £16bn in June, coming in slightly below the £16.3bn forecast by the Office for Budget Responsibility. The figure, down £7.9bn from the same month last year, was driven by higher income tax and VAT receipts. Interest payments on inflation-linked debt also fell, with the government paying £11.8bn, nearly a third less than a year prior.
However, the headline number masks a tighter underlying fiscal picture. Since the start of the financial year, total borrowing has reached £57.6bn. While this is £3.7bn lower than last year, it remains £2.7bn above the OBR's forecast, leaving total public debt lingering near the £3 trillion mark.
The data arrives as new Prime Minister Andy Burnham and Chancellor John Healey attempt to deliver household cost-of-living relief. Both have committed to the fiscal rules inherited from former chancellor Rachel Reeves, though Burnham has signalled he will use "any flexibility within them" to fund policy shifts.
Healey stressed that "fiscal credibility is the bedrock for economic stability and for national security." Market watchers remain sceptical about the scope for significant new spending. Ruth Gregory, deputy chief UK economist at Capital Economics, described the June data as "a rare piece of good news" for the new leadership, but cautioned that "the public finances are fragile and that there is limited scope for extra borrowing."
Cooling wages shape rate outlook
The fiscal constraints are mirrored by a softening labour market that reinforces expectations the Bank of England will keep interest rates at 3.75% next week. The unemployment rate held steady at 4.9% through the three months to May, with regular earnings growth flat at an annual pace of 3.4%.
Crucially for inflation hawks, private sector wage growth dropped below 3% for the first time since 2020. Yael Selfin, chief economist at KPMG, said this "subdued" trend made a rate hold more likely, noting that "weak hiring activity is continuing to weigh on workers' bargaining power, limiting upward pressure on wages."
The broader consumer outlook remains challenging. Selfin warned that households face a "renewed squeeze on living standards during the second half of the year as higher energy costs feed through to household bills," a dynamic that will test the new government's ability to stimulate the economy without breaking its fiscal vows.
