July public sector finances: UK economy is at risk of falling into a “debt doom loop”

FINANCIAL experts have warned the UK economy is at risk of falling into a “debt doom loop” following new public sector finances data published this morning. One suggested that, at the current rate, we could be on “the path to a 1970s-style IMF intervention”.

Borrowing in the financial year to July 2025 was £60.0 billion, £6.7 billion more than in the same four-month period of 2024 and the third-highest April to July borrowing since monthly records began, after those of 2020 and 2021, according to official data published this morning.

Borrowing - the difference between total public sector spending and income - was £1.1 billion in July 2025, £2.3 billion less than in July 2024 and the lowest July borrowing for three years. This was influenced by strong Self-assessed (SA) Income Tax receipts in July 2025, which were £15.5 billion, £2.7 billion more than in July 2024.

Public sector net debt excluding public sector banks was provisionally estimated at 96.1% of gross domestic product (GDP) at the end of July 2025; this was 0.5% more than at the end of July 2024 and remains at levels last seen in the early 1960s.

The current budget - borrowing to fund day-to-day public sector activities - was in surplus by £3.3 billion in July 2025; this brings the total current budget deficit in the financial year to July 2025 to £42.8 billion, £5.4 billion more than in the same four-month period of 2024.

Anita Wright, Chartered Financial Planner at Ribble Wealth Management, commented: "The latest borrowing and debt figures are a sharp reminder of just how precarious the UK’s fiscal position has become.

"The government is still leaning heavily on borrowing simply to keep the system ticking over, even though the pandemic years of emergency spending have long passed. Yet unlike then, this borrowing is not buying resilience – it is covering the cracks in an economy where private sector momentum is weak, productivity remains subdued and inflationary pressures are still embedded in services.

“That dynamic – weak growth feeding higher borrowing, and higher borrowing costs feeding weaker growth – is precisely how a debt doom loop sets in.”

Philly Ponniah, Chartered Wealth Manager and Financial Coach at Philly Financial, said tax rises are now likely in the forthcoming Budget: "The Government is leaning ever harder on debt simply to fund day-to-day spending. Debt above 96% of GDP is back at levels last seen in the 1960s, yet unlike then, we face an ageing population and higher debt-interest costs. The UK is stuck in a cycle of high borrowing that makes tax rises this autumn more likely."

Samuel Mather-Holgate, Independent Financial Adviser at Swindon-based Mather and Murray Financial, said the public finances are in a mess despite the better than expected July numbers: “Politicians from across the aisle will pull out whichever parts of the figures support their narrative with this latest data dump. One thing that can’t be argued is the public finances are in a mess, and aren’t improving quickly enough for people to feel any noticeable difference.

"Labour's manifesto for change is more like a cookbook of the same. Starmer and Reeves need to push the accelerator pronto as people are losing their patience fast.”

Scott Gallacher, Director at Leicester-based Rowley Turton, was also critical despite the July number: "The Chancellor will no doubt take some comfort from borrowing being down in July, but the reality is that after a year of Labour, debt is still rising.

"As a country, we’re continuing to live beyond our means, with no sign of the much-promised growth and no appetite to cut up the Government’s credit card. Markets may tolerate this in the short term, but the danger is a vicious circle — a growing debt mountain spooks the City, gilt yields rise, and Britain ends up borrowing more just to stand still.

“That’s the path to a 1970s-style IMF intervention. Slower borrowing means we’ve eased off the accelerator slightly, but we’re still heading towards a potential debt death spiral.”