UK gilt yields are back above 5% – and bond markets are betting Healey’s October Budget brings more borrowing
Key Points
- UK borrowing hit £1.8 billion in July 2026, 68.7% higher than July 2025 and £2.3 billion above the OBR forecast
- 10-year gilt yields moved back above 5%, with Quilter Cheviot pointing to market expectations of further borrowing
- Central government debt interest reached £7.7 billion, including £1.3 billion of RPI-linked capital uplift
- Public sector net debt stood at £2,984.9 billion, or 94.1% of GDP, down 0.8 percentage points year on year
- The 2026 Budget is confirmed for Wednesday 28 October
UK 10-year gilt yields climbed back above 5% this week as government borrowing overshot the official forecast for July by £2.3 billion.
Borrowing reached £1.8 billion in July, £0.7 billion or 68.7% more than in July 2025, data from the Office for National Statistics on Friday (21 August) showed. The Office for Budget Responsibility had forecast a £0.5 billion surplus for the month.
Central government accounted for £6.4 billion of the total, £1.1 billion more than a year earlier, as spending growth outpaced receipts.
Central government interest payments totalled £7.7 billion in July, 9.6% higher than a year earlier. Capital uplift – the part of index-linked gilt interest that moves with the Retail Prices Index – added £1.3 billion to that bill, largely reflecting the 0.2% rise in RPI between April and May 2026. Investors receive that uplift when the gilt matures rather than as a cash payment during the month.
“In a week where gilt yields have once again marched higher and back above the symbolic 5% mark for 10 year bonds, the latest public sector finances data show borrowing for July was £1.8 billion, £0.7 billion or 68.7% more than the same time last year and £2.3 billion above the OBR’s forecast,” said Richard Carter, Head of Fixed Interest Research at Quilter Cheviot.
Borrowing Burnham
Carter linked the move in yields to expectations of further borrowing under Prime Minister Andy Burnham.
“He has already spoken vocally about wanting to find ‘flexibility’ within the fiscal rules, and bond markets are taking this as a sign that extra borrowing is to come,” Carter said.
He also pointed to stalled negotiations between the US and Iran and to movements in US bond yields as pressures on the UK position.
The wider borrowing picture improved. Borrowing in the financial year to July stood at £56.7 billion, £6.0 billion or 9.6% below the same period last year, though still £2.3 billion above the OBR forecast.
That equates to 1.8% of gross domestic product, 0.3 percentage points lower than a year earlier and the 12th lowest April to July period since comparable monthly records began in 1993.
Public sector net debt reached £2,984.9 billion at the end of July, £95.9 billion more than a year earlier.
As a share of the economy, debt fell to 94.1% of GDP, 0.8 percentage points below July 2025 and 0.3 percentage points below the OBR forecast. Debt has remained at levels last seen in the early 1960s.
The UK government has confirmed the 2026 Budget for 28 October, when the OBR will publish an updated set of forecasts.
“With a rate rise this year from the Bank of England still likely, the government’s fiscal position is going to remain challenged unless sustained economic growth can be found,” Carter said.
