UK borrowing runs £8.1 billion above OBR forecast ahead of Healey's October budget

Three weeks before Chancellor John Healey is due to present the Burnham government's first budget on 28 October 2026, official data confirm that public sector net borrowing is running materially ahead of the Office for Budget Responsibility's forecast. The Office for National Statistics published public sector finances data for August 2026 on 22 September, showing borrowing of £18.3 billion in the month — described by the ONS as the second-highest August figure on record in nominal terms, behind only August 2020. Against the OBR's monthly projection, the August outturn was £3.5 billion above forecast. The cumulative overshoot for the financial year to August has reached £8.1 billion, with the year-to-date total of £77.3 billion running above the OBR path in every month since April 2026. The data frame a budget in which Chancellor Healey's commitment to fiscal discipline is being tested by the numbers before any new spending decisions have been announced.

Composition and trajectory of the overshoot

The ONS attributed the August overshoot primarily to spending rather than a revenue shortfall. Benefits expenditure rose approximately £2 billion year on year in the month, and spending on goods and services added a further £1.2 billion. Tax receipts increased relative to August 2025 but by less than the rise in spending. The government's total year-to-date borrowing of £77.3 billion is, in cash terms, 2.7 percent lower than the same period in 2025, reflecting changes to the public sector financial boundary and some prior-year revisions; the relevant comparison for fiscal management is the OBR forecast path, against which the overshoot has widened each month since the financial year began.

Public sector net debt stood at approximately £2,985.5 billion at the end of August 2026, equivalent to 93.8 percent of GDP. The ONS noted that the ratio was 1.3 percentage points lower than at the same point in 2025, as nominal GDP growth has outpaced the stock of debt. Nonetheless, with borrowing above forecast in each of the first five months of the financial year, independent fiscal analysts have noted that the headroom against the government's fiscal rules — broadly, that day-to-day spending should not be financed by borrowing, and that debt must fall as a share of GDP over the forecast period — has narrowed significantly since the OBR's previous assessment. The OBR will publish updated projections alongside the 28 October budget statement.

Bank of England rate pressure

The Bank of England's Monetary Policy Committee voted six to three at its 17 September 2026 meeting to hold Bank Rate at 3.75 percent. The three dissenting members voted for a rise to 4 percent, citing persistent services-sector inflation and the pass-through from higher global energy prices following supply disruptions linked to the Middle East conflict. Bank Rate had been reduced from a peak of 5.25 percent through a sequence of cuts beginning in 2024; the September split suggests the easing cycle has reached an inflection point.

For the Treasury, the significance of the split vote lies in its debt-service implications. A large share of UK government borrowing is financed through short-dated gilts and Treasury bills that reprice frequently. A quarter-point rise in Bank Rate — which market pricing assigns as the modal outcome at the 5 November MPC meeting — would raise the effective cost of rolling that debt. The OBR incorporates interest-rate expectations into its fiscal forecasts; if its October projections must account for a higher rate path than in the previous forecast, the resulting upward revision to the debt-interest bill would further reduce the headroom available to the Chancellor.

Constraints on the October budget

The combination of a borrowing overshoot and a split MPC defines the operational space for the 28 October budget. Chancellor Healey stated at the outset of his tenure that he would meet the government's fiscal rules and that the budget would move 'money and power out of Westminster, and into every postcode around Britain, built on fiscal discipline.' Reconciling that ambition with a fiscal position that is already running above the OBR forecast requires either accepting a smaller margin for error, identifying offsetting revenue measures, or scaling back spending commitments.

Three policy areas bear directly on the budget arithmetic. First, the Burnham government has in principle committed to a roadmap toward NATO's 3.5 percent of GDP target on defence spending by 2035, starting from the current level of approximately 2.3 percent. Each additional percentage point of GDP represents roughly £25 billion per year at current prices; any pre-commitment to a multi-year path would be scored against the fiscal rules at the October OBR forecast. Second, with Ofgem having raised the household energy price cap by 4 percent to £1,723 from 1 October 2026, and independent forecasters projecting a further 12-16 percent rise in January 2027, the government faces renewed pressure to extend or expand household support programmes at a cost that would recur each quarter the cap remains elevated. Third, any fiscal element attached to the planned UK-EU reset — including possible co-financing of sanitary and phytosanitary alignment infrastructure or contributions linked to re-entry into EU programmes — would need to be costed and scored.

The next ONS public sector finances release, covering September 2026, is scheduled for 21 October 2026 — one week before the budget. That release will give the OBR its final monthly data point before it closes its forecast, and will either narrow or widen the cumulative overshoot depending on September outturns. If the gap continues to accumulate at the April-to-August pace, it would enter the budget debate as a constraint rather than a cushion.

Sources

• ONS — Public Sector Finances, UK: August 2026
• HM Treasury — Public Sector Finances August 2026 bulletin (PDF)
• Bank of England — Interest rates and Bank Rate: our latest decision
• Office for Budget Responsibility — News and publications
• GOV.UK — Public Sector Finances UK: September 2026 (scheduled release 21 October 2026)
• Ofgem — Energy price cap: check if it affects you