UK Budget Swings to Surprise £1.8 Billion Deficit in July

Britain recorded an unexpected £1.8 billion ($2.5 billion) budget deficit in July, as inflation-driven government spending outweighed record self-assessed income tax receipts, highlighting continued pressure on the UK’s public finances.

The latest figure was weaker than economists had anticipated. A Reuters poll had forecast a balanced budget for July, while the Office for Budget Responsibility (OBR) had projected a £500 million surplus. Such an outcome would have marked Britain’s first July budget surplus since before the COVID-19 pandemic.

Data from the Office for National Statistics (ONS) showed that rising expenditure was a major contributor to the deficit. Central government spending on social benefits increased by £2 billion compared with July last year, while expenditure on goods and services, including government staff costs, climbed by £1.2 billion.

The figures came despite particularly strong tax revenues. Self-assessed income tax receipts reached a record level for July, but the increase was insufficient to offset higher government spending.

UK government borrowing totaled £56.7 billion during the first four months of the financial year, covering April through July. That exceeded the OBR’s forecast of £54.4 billion for the same period, underscoring the challenges facing the government as it seeks to keep public finances under control.

The fiscal figures add to the constraints confronting Prime Minister Andy Burnham and Finance Minister John Healey ahead of the government’s October budget. The pressure comes even as recent UK economic growth figures have delivered some unexpectedly positive signals.

There was, however, some improvement in the current budget deficit, a key measure under Britain’s fiscal framework. The deficit stood at £34.7 billion between April and July, below the OBR’s £36.7 billion projection. Under existing fiscal rules, the current budget must be brought into balance by the 2029/30 financial year.

Healey reiterated the government’s commitment to maintaining control over public finances while preserving room to respond to external economic risks.

“Fiscal discipline is the bedrock of our UK economic stability and national security,” Healey said, adding that the government remains committed to meeting its fiscal rules while maintaining a buffer against global uncertainties.