UK Borrowing Jumps to £18.3bn as Inflation and Debt Costs Add Pressure

UK public sector borrowing rose sharply in August, coming in above official forecasts as higher spending and debt-interest costs added to pressure on the public finances ahead of the October Budget.

The Office for National Statistics recorded £18.3 billion of public sector net borrowing in August 2026.

That was £2.9 billion — or 19% — higher than in August last year and £3.5 billion above the Office for Budget Responsibility's forecast.

In cash terms, it was the second-highest August borrowing figure on record, behind only August 2020 during the pandemic.

The figures do not directly determine mortgage rates.

But they add another piece to a complicated economic backdrop in which households are already dealing with inflation above the Bank of England's 2% target and mortgage rates that have moved higher again during September.

Why did government borrowing rise?

Borrowing measures the difference between what the public sector receives and what it spends.

Government receipts increased during August, but spending rose faster.

Central government current receipts reached £89.8 billion, £3.3 billion higher than a year earlier.

Total central government expenditure rose by £4.9 billion to £103.1 billion.

The ONS said higher spending partly reflected the effects of inflation on public services, benefits and other government costs.

Debt-interest payments were another significant part of the month's expenditure.

Central government debt interest reached £8.8 billion in August, £400 million more than a year earlier and the highest August figure since monthly records began in 1997.

Part of that cost reflects index-linked government debt, where payments can move with the Retail Prices Index.

The ONS said £2.1 billion of August's interest bill reflected the inflation-linked capital uplift on index-linked gilts.

The year-to-date picture is more mixed

The August figure was substantially above forecast, but one month's borrowing should not be treated as the complete picture.

Across the financial year from April to August, the public sector borrowed £77.3 billion.

That was actually £2.2 billion lower than during the same period last year.

However, it was still £8.1 billion above the amount forecast by the OBR.

That distinction matters.

The latest figures therefore show borrowing running ahead of the government's official forecast, rather than borrowing being higher than last year across the entire financial year so far.

Monthly public-finance estimates can also be revised as more complete information becomes available.

Why does this matter to mortgage borrowers?

Public borrowing figures do not automatically change mortgage rates.

If you are on a fixed-rate mortgage, today's borrowing announcement does not alter the rate written into your existing deal.

Likewise, the Bank of England does not set Bank Rate according to a single month's government borrowing figure.

The connection is indirect.

Government finances form part of the wider economic environment affecting:

  • Inflation
  • Government bond markets
  • Interest-rate expectations
  • Household confidence
  • Economic growth
  • Mortgage funding costs

Mortgage lenders then price their products using a combination of factors rather than simply copying Bank Rate.

Our guide to how rising interest rates affect your mortgage explains why fixed, tracker and variable-rate borrowers can be affected differently.

Inflation remains above the Bank of England target

The borrowing figures arrive less than a week after the ONS reported that UK CPI inflation rose to 3.1% in August, up from 2.9% in July.

Transport costs, particularly motor fuels, made the largest upward contribution to the increase.

That matters to borrowers in two ways.

First, higher prices can reduce the amount of household income available after essentials such as:

  • Food
  • Energy
  • Transport
  • Childcare
  • Insurance
  • Other debts

Second, persistent inflation can affect expectations about how long interest rates may need to remain elevated.

Our latest article on UK inflation rising to 3.1% explains the mortgage implications in more detail.

Bank Rate remains at 3.75%

The Bank of England's Monetary Policy Committee voted on 17 September to hold Bank Rate at 3.75%.

The decision was not unanimous.

Six members voted to keep rates unchanged, while three preferred an increase to 4%.

The Bank said inflation was likely to rise further over coming quarters and highlighted continuing uncertainty around energy prices.

That means borrowers should be cautious about interpreting either the borrowing figures or the September rate decision as a reliable signal that mortgage rates must move in one particular direction.

Fixed mortgage pricing can change even when Bank Rate does not.

Lenders also respond to funding costs, swap rates, competition and market expectations.

For example, average fixed mortgage rates increased again in September despite the Bank leaving its own rate unchanged.

Household affordability remains the more immediate issue

For many borrowers, the most direct connection between the latest economic figures and their mortgage is the effect on the household budget.

Inflation can raise regular expenditure even when the mortgage payment itself has not changed.

That becomes particularly important for someone:

  • Applying for a mortgage
  • Moving home
  • Borrowing more
  • Remortgaging
  • Coming to the end of a fixed deal

Mortgage lenders assess more than income.

They can also consider debts, childcare, household expenditure, dependants and other regular commitments when deciding whether borrowing is affordable.

Our guide to what affects how much you can borrow for a mortgage explains how those factors fit together.

Borrowers close to the limit may also encounter lender affordability stress testing.

See how mortgage stress tests actually work for more detail.

What does the borrowing figure mean for the October Budget?

The latest numbers will form part of the fiscal picture considered ahead of the Budget on Wednesday 28 October 2026.

The OBR is due to publish an updated economic and fiscal forecast alongside the Budget.

That forecast will matter more to the government's medium-term fiscal position than one individual monthly borrowing release.

August borrowing being £3.5 billion above forecast, and financial-year borrowing running £8.1 billion ahead of the previous OBR profile, reduces the margin against that earlier forecast unless other parts of the fiscal position improve.

However, it would be premature to conclude from today's figures that any particular tax, spending or housing measure will follow.

The Budget will be based on updated forecasts and a much wider assessment of the public finances.

Borrowers should therefore distinguish between confirmed policy and speculation in the weeks ahead.

What should mortgage borrowers take from today's figures?

The main message is not that government borrowing has suddenly changed mortgage rates.

It has not.

Instead, today's figures add another layer to an already uncertain economic environment.

Borrowers now know that:

  • The UK borrowed £18.3bn in August, £3.5bn more than forecast.
  • Financial-year borrowing remains below last year's level, but is £8.1bn above the OBR forecast.
  • Debt-interest costs reached £8.8bn, the highest August figure since records began.
  • CPI inflation is 3.1%, above the Bank of England's 2% target.
  • Bank Rate remains at 3.75%, following a 6–3 MPC vote.
  • The next Budget is due on 28 October, alongside new OBR forecasts.

None of those points provides a standalone forecast for mortgage rates.

Together, however, they show why borrowers are making decisions in a market where inflation, government finances, interest-rate expectations and household affordability are all pulling on the outlook at the same time.

Someone approaching a remortgage or new purchase therefore has more to consider than simply waiting for the next Bank of England announcement.

The rate available, the household budget and the lender's own affordability assessment can all matter.

Sources

Important information

This article is for general information only and does not constitute mortgage or financial advice. Mortgage rates, affordability assessments and lending criteria vary between lenders and can change over time.