Chancellor John Healey faces a narrowing path to his Budget on 28 October after a Healey borrowing overshoot pushed August’s public sector net borrowing to £18.3bn, about £3.5bn above the Office for Budget Responsibility’s own forecast and above market predictions. The Office for National Statistics (ONS) published the figures as Healey is already exchanging forecasts and policies with the OBR ahead of the fiscal event.
The ONS said the public sector current budget deficit for August was also above the OBR’s forecast, taking cumulative borrowing to fund day-to-day government spending to £51.9bn in the current financial year. Public sector debt remained below the £3 trillion mark at the end of August 2026, but the trajectory is uncomfortable for a chancellor who must demonstrate he is meeting his own fiscal rules.
Five months of overshoot pile pressure on the Budget
The August figures do not stand alone. According to Bloomberg Law, the deficit climbed to £77.3bn in the first five months of the fiscal year, running £8.1bn above what the OBR predicted in March. That cumulative gap is what makes the latest monthly number more than a one-off: the government has been running above forecast since April.
Earlier data, cited by BBC News, showed borrowing from April to July alone had reached £56.7bn, already £2.3bn higher than OBR forecasts. The August addition means the gap has widened further, and with five months still to run before the halfway point of the financial year, there is little expectation of a natural correction.
The ONS attributed the higher spending in August partly to the impacts of inflation, which pushed up costs across government departments. Debt interest payments also rose to £8.8bn in August, squeezing the chancellor’s room for manoeuvre before he has even set foot at the despatch box.
Ruth Gregory of Capital Economics said the figures painted a ‘dismal picture’ as the government ‘once again’ borrowed more than expected. ‘All this means after five months of the financial year borrowing is £8.1bn higher than the OBR forecast in March,’ Gregory said. She added that she expected the overshoot to persist as real GDP growth weakens in the fourth quarter and the government announces further cost-of-living support.
Gregory also said she expected Healey to top up his fiscal buffer by up to £14bn through tax rises or spending cuts, should he wish to restore the level of headroom he had in March.
Headroom under pressure from multiple directions on the Healey borrowing overshoot
The chancellor’s stated headroom currently stands at £23.6bn against his main fiscal rule, which requires that government receipts match or outweigh day-to-day spending by the third year of the OBR’s forecast period. But that buffer is being eroded from several directions at once.
According to the UK Parliament Lords Library, the Resolution Foundation think tank has estimated that headroom against the chancellor’s fiscal rules may have shrunk to around £8bn as a result of the economic impact of recent pressures. The same source notes that in November 2025 the OBR forecast the government would meet its current budget rule by a margin of £22bn in 2029/30, equivalent to 0.6% of GDP, a figure that now looks harder to sustain.
Gilt markets have added to the strain. Ten-year gilt yields have risen by around half a percentage point over the year, driven partly by fears among traders that the Bank of England would raise interest rates following the energy price shock from the Iran war. At its peak, City analysts warned the spike in gilt yields slashed the chancellor’s headroom by as much as £9bn, though yields partly fell back at the end of last week.
Tweaks to migration predictions, spending projections and growth forecasts could further erode the buffer as the OBR finalises its work. Healey also faces demands to provide households and businesses with support on higher energy costs and to increase defence spending to 3% of GDP by 2030 from a current level of 2.6%, a commitment that could require finding around an extra £11bn a year through cuts elsewhere.
Shadow chancellor Andrew Griffith was direct in his criticism, saying it took a ‘rare fiscal incontinence to have both the highest tax take in history and see borrowing still shoot up’. A series of constraints have led researchers and economists to conclude that tax rises at the Budget are more likely than not.
With the OBR and Treasury already in active dialogue and five weeks remaining before Budget day on 28 October, the window to improve the picture on borrowing before the chancellor stands up is essentially closed.
