After yesterday’s disappointing economic news from the UK we can start today with a better headline.
Borrowing – the difference between total public sector spending and income – was £1.1 billion in July 2025; this was £2.3 billion less than in July 2024 and the lowest July borrowing for three years.
So we have a much lower number and for once a decline on borrowing compared to last year. Care is needed with the former number as July is a tax collecting month and thus produces lower borrowing figures.So let us start with that.
July Receipts
It was a strong month for these as you can see below.
Central government’s current receipts were £100.1 billion in July 2025, £8.8 billion more than in July 2024. Of this £8.8 billion increase in income:
This is one way of measuring underlying strength in the economy although we do need to subtract the main tax rise.
compulsory social contributions increased by £2.6 billion to £16.3 billion; on 6 April 2025 changes to the rate of National Insurance contributions paid by employers came into effect.
That leaves us with a breakdown of this.
central government tax receipts increased by £6.1 billion to £77.6 billion; this included increases of £4.5 billion in Income Tax, £0.9 billion in Value Added Tax (VAT) and £0.4 billion in Corporation Tax receipts.
The Income Tax figures are boosted in January and July by the Self Assessment season where essentially the self-employed make their payments.
Self-assessed (SA) Income Tax receipts were provisionally estimated as £15.5 billion in July 2025, £2.7 billion more than in July 2024. This was £0.6 billion more than the £14.9 billion forecast in March 2025 by the OBR.
There is always the issue that some payments are recorded in August so we only get the full picture then. Also when I looked at the GDP update on Monday there was a boost to 2022 via higher than previously recorded Corporation Tax figures which is a reminder of how poor the quality of the initial figures is. Most people these days track loads of things on their smartphones whereas our ship of state seems unable to even vaguely match. But we can move on noting that the Self-Assessment season has started well.
July Expenditure
Here we see the positive vibe gets chipped away at.
Central government’s current expenditure was provisionally estimated as £92.1 billion in July 2025, £5.3 billion more than in July 2024. Of this £5.3 billion increase in spending:.
In fact we are in the zone of some song lyrics I find myself increasingly using.
So let me get right to the point,
I don’t pop my cork for every man I see.
HEY Big Spender,
Spend a little time with me. ( Shirley Bassey)
We can start with a point of detail which is essentially government policy as one of its first moves was public-sector pay rises and only yesterday I looked at how the October Budget raised the rate of inflation.
central government departmental spending on goods and services increased by £2.9 billion to £38.7 billion, as pay rises and inflation increased running costs.
If you have inflation and we do have inflation higher than our peers then this happens as well.
net social benefits paid by central government increased by £1.6 billion to £27.6 billion, largely caused by inflation-linked increases in many benefits and earnings-linked increases to State Pension payments.
One might have expected a bigger number here but it is an irregular series.
At £7.1 billion in July 2025, the interest payable on central government debt was £0.2 billion more than in July 2024.
If we continue the inflation theme the numbers are lagged by around 3 months so we see this.
This additional RPI inflation-linked interest is described as “capital uplift” and affects the value of the gilt principal. Capital uplift was £1.1 billion in July 2025, largely reflecting the 0.2% increase in the RPI between April and May 2025.
So a welcome bit of relief but we know that higher numbers are coming for this area as we have seen 0.4% and 0.4% as the monthly RPI rises since. Plus there is the underlying drum beat coming from the way that we have seen higher bond yields particularly since last October’s Budget.
UK bond markets have become increasingly skittish with 30-year gilts hitting 5.6%, the highest for many year, increasing government borrowing costs even more. Not good news for Ms Reeves. ( Andrew Neil)
It is a potential doom-loop in that higher bond yields lead to a worse fiscal position and even higher bond yields.But this time around the movements in inflation flattered the numbers and the next 2 releases will be more difficult.
The Bank of England
It may seem hard to believe with the way we know the UK bond market has been under pressure this year but we are told this.
In July 2025, central government made a £3.4 billion quarterly payment to the Bank of England (BoE) Asset Purchase Facility (APF) Fund. This was an £8.8 billion smaller payment than in July 2024.
Also they do not officially count.
These payments are recorded as both central government net investment expenditure and BoE receipts, and so have no impact on overall public sector borrowing (PSNB ex).
The Tax Year So Far
Here the better news hits even more troubled water and I have highlighted the crucial point..
The public sector spent more than it received in taxes and other income in the financial year (FY) to July 2025. Provisional estimates show it borrowed £60.0 billion over the four-month period……….Borrowing in the FY to July 2025 was £6.7 billion more than in the FY to July 2024 and the third-highest FY to July borrowing since monthly records began in 1993, after those of July 2020 and 2021 during the coronavirus (COVID-19) pandemic period.
So even with economic growth having been relatively good in the 2025 calendar year with GDP rising on a quarterly basis by 0.7% and then 0.3% we are still borrowing more. Again receipts were pretty good.
Central government’s current receipts were £352.3 billion in the FY to July 2025, £24.4 billion more than in the same four-month period a year ago.
No doubt there is some inflation in there as well but the signs are hopeful and provide some support for the GDP figures. But we spent more at an even faster rate.
Central government’s current expenditure was provisionally estimated at £375.3 billion in the FY to July 2025, £29.0 billion more than in the same four-month period a year ago.
Along the way we see that higher inflation is impacting as we take more of a perspective.
interest payable on central government debt increased by £8.7 billion to £41.4 billion, largely because the interest payable on index-linked gilts rises and falls with the Retail Prices Index (RPI)
National Debt
There have been so many manipulations of this number over the years I wonder about its actual value, But anyway here it is.
The net debt-to-GDP ratio at the end of July 2025 was provisionally estimated at 96.1%, 0.5 percentage points more than a year ago. However, this is a highly provisional estimate.
Remember the media storm about it passing 100%? I doubt many have bothered to publish the reduction in the same manner…
Along the way we do get an estimate of the present Bank of England QE capital losses.
The APF Fund’s gilt holding is not recorded directly as a component of public sector net debt. Instead, in July 2025, we recorded the £88.7 billion difference between the £586.4 billion of reserves created to purchase its gilts (at market value at the time of purchase) and their £497.7 billion redemption value.
Comment
There is some hope for future tax receipts from the PMI business survey released this morning.
“The flash UK PMI survey for August indicated that the
pace of economic growth has continued to accelerate
over the summer after a sluggish spring, the rate of
expansion now at a one-year high. The services sector
has led the expansion, but manufacturing also showed
further signs of stabilising.”
Plus this.
Finally, business activity expectations for the year ahead
edged up to the highest since October 2024.
The problem is as I pointed out back on 27th of May which is that spending looks to be out of control.
The UK government is acting as if bond issuance is both cheap and available in plentiful supply when neither is true. For many it may seem an arcane matter but it does matter especially when you have embarked on a policy of extra spending.
I think that the concerns in bond markets mostly relate to them projecting what would happen to these numbers if economic growth dried up?
