Borrowing spree by the government pushes gilt yields to new heights, reaching £18bn
The UK government is facing a series of fiscal challenges in the coming months, with borrowing exceeding official forecasts and a potential increase in taxes on the horizon.
In August 2021, the UK's net borrowing came in at £18 billion, £3.5 billion more than the previous month and £5.5 billion higher than the Office for Budget Responsibility's (OBR) forecast in March. This overspending was partially offset by increased employer national insurance contributions, but it has raised concerns about the government's financial situation.
The yield on 30-year gilts jumped by as much as 5 basis points in early trading due to the increased borrowing, indicating a potential impact on the economy. Over the last year, 10- and 30-year yields have risen, with 10-year and 30-year yields being up by 107bps and 80bps respectively.
The Bank of England had planned to slow the pace of its quantitative tightening programme, which has eased the yields slightly over the last month. However, the increased borrowing could potentially stoke inflation and undermine growth, according to some experts.
The Office for Budget Responsibility is expected to strike a more pessimistic tone on productivity, another reason why talk of a fiscal 'black hole' is not misplaced. There is potential for revenue-raising reforms that would make the tax system more efficient, but these come with political risks. The choices made regarding which taxes to raise will be critical in managing the UK's financial situation.
If current trends continue, borrowing in 2025-26 could overshoot the OBR's full-year forecast by nearly £20 billion, pushing the deficit close to 5 per cent of GDP. This could lead to increased interest on Government debt, with soaring interest increasing by £1.9 billion to £8.4 billion in August.
The Chancellor is facing growing fiscal headaches ahead of November's Budget, according to Martin Beck, chief economist at WPI Strategy. The political landscape is also challenging, with a government facing fractious backbenchers and shaky support. A government, facing such circumstances, may be reluctant to take on these political risks.
In November, tax rises are expected due to the UK's increased borrowing. Several investing platforms are available for those interested in monitoring the UK's economic situation, including AJ Bell, Hargreaves Lansdown, interactive investor, InvestEngine, and Trading 212.
Elsewhere, the German government led by Friedrich Merz experienced high long-term budget borrowing costs in September 2025, amid fiscal deficits and disputes over social state reforms. There is fear that tax increases may become unavoidable in November because budget gaps need to be closed, and neither spending cuts nor sufficient new revenue sources have been clearly agreed upon within the coalition government, leading to political uncertainty about raising taxes or increasing contributions.
In conclusion, the UK government is facing a series of fiscal challenges in the coming months. The increased borrowing, potential tax rises, and economic uncertainties are causing concern among economists and investors alike. The choices made by the government in the upcoming budget will be critical in managing the UK's financial situation and maintaining economic stability.
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