UK government borrowing in June came in at £16bn, fractionally below the Office for Budget Responsibility’s forecast of £16.3bn, according to figures published by the Office for National Statistics (ONS) on 21 July 2026. The ONS confirmed that public sector borrowing ran £0.3bn below forecast for the month, offering Andy Burnham’s new administration a sliver of breathing room on the day he began setting out household cost-of-living measures.
Breathing room, though, is about the limit of it. Total public sector debt remains near £3 trillion, close to the annual value of the entire UK economy. One month’s mild undershoot does not alter the underlying arithmetic.
Why the year-to-date picture matters more than June alone
June’s borrowing was £7.9bn lower than the same month last year, helped by stronger income tax and VAT receipts and a sharp fall in debt interest costs. The government paid £11.8bn in debt interest in June, nearly a third lower than June 2025, though the ONS noted it was still the fourth highest total for June on record.
The more instructive figure is the cumulative one. Borrowing in the first quarter of 2026-27 reached £57.6bn, which is £3.7bn lower than the same period last year but £2.7bn above the OBR’s forecast for the same stretch. The OBR has characterised the first-quarter position as ‘slightly above forecast’, a description that does the diplomatic work of acknowledging the shortfall without quite alarming the bond market.
For context, the OBR’s initial estimate for full-year 2025-26 borrowing, published in April, put public sector net borrowing at £132.0bn, broadly in line with its March forecast of £132.7bn and £19.8bn below the 2024-25 outturn. The direction of travel is the right one; the pace is not yet reassuring.
Ruth Gregory, deputy chief UK economist at Capital Economics, called June’s undershoot ‘a rare piece of good news’ for Burnham and his new chancellor John Healey. She did not linger on the optimism. ‘Overall, there’s no escaping the fact that the public finances are fragile and that there is limited scope for extra borrowing,’ she added.
Healey has said that ‘fiscal credibility is the bedrock for economic stability and for national security.’ Both he and Burnham have pledged to maintain Rachel Reeves’ fiscal rules, though Burnham has indicated he will use ‘any flexibility within them’ to support policy changes. That formulation is worth watching: fiscal rules tend to become more elastic precisely when governments most need them to hold.
UK government borrowing in June and the labour market behind it
The revenue side of June’s borrowing equation depended partly on a labour market that is softening, not collapsing. The ONS July 2026 labour market overview put the unemployment rate at 4.9% in the March-to-May period, unchanged from the previous reading.
Beneath that steadiness, though, the ONS reported that payrolled employees fell by 85,000 (0.3%) between May 2025 and May 2026, and by 90,000 (0.3%) over the year to March-to-May 2026. The Employment in the UK: July 2026 bulletin showed the employment rate (aged 16-64) at 75.1%, lower on the year though up slightly in the most recent quarter.
Regular earnings growth held at 3.4% annually, but private sector wage growth fell below 3% for the first time since 2020. That figure matters for two reasons: it limits consumer spending power, which in turn affects VAT receipts, and it reduces inflationary pressure.
Yael Selfin, chief economist at KPMG, said the ‘subdued’ wage growth made it more likely the Bank of England would keep interest rates on hold at 3.75% at its meeting next week. ‘Weak hiring activity is continuing to weigh on workers’ bargaining power, limiting upward pressure on wages,’ she said. She also warned that ‘workers are also set to see a renewed squeeze on living standards during the second half of the year as higher energy costs feed through to household bills.’
That energy cost squeeze is, of course, the reason Burnham launched his cost-of-living package on the same morning these figures landed. Whether the package helps households without widening the fiscal gap the OBR is already watching is the question the autumn statement will need to answer. The OBR’s next full forecast will be the test; the monthly borrowing data between now and then will tell us whether one good June was a turning point or merely a pause.
