The recent release of the UK’s public sector finance data paints a troubling picture of the country’s economic health. Public sector net borrowing came in at £20.2 billion for September 2025. This has been higher than last year’s numbers and is the largest month of expected borrowing for the month of September in five years. That new data led to one of the biggest drops of the pound’s value. It fell under $1.34 against the greenback. As these financial challenges mount, Labour’s Shadow Chancellor Rachel Reeves is expected to propose tax increases in next month’s budget, stirring concerns over the nation’s fiscal stability.
This borrowing level has already jumped by £1.6 billion since only September 2024. It points to a deeply concerning trend, with the UK’s current borrowing rate mirroring that of the COVID-19 pandemic years. The public sector’s net financial liabilities have grown to 83.8% of GDP, which is an increase of 3% over last year. Reeves recently found himself under increased pressure to address what most agree is an unsustainable fiscal trajectory.
Rising Debt Interest Payments
Record debt interest payments—a 66% increase—have fueled the rise in borrowing. In September only, these payments amounted to £9.7 billion. The retail price index soared in July, sending one big wave of increased expenses crashing down. This is a huge driver of the exorbitant costs associated with paying on the nation’s debt. Beyond the financial impact, this increase is a big deal. Persistently high borrowing and swelling debt interest payments alone would pose a severe threat to the UK’s fiscal health.
In a time when the nation should be charting a path through these challenging waters, conversations about fiscal policy are heating up. Shadow Chancellor Rachel Reeves has made no bones about her desire to avoid going back to the public for more borrowing or tax rises. The budget deficit for Q2 is 5.38%. That’s a little more than France’s 5.8%, but it’s still cause for deep concern and troublingly pares her options down as we all look ahead.
Comparisons with France
The UK’s fiscal outlook is beginning to resemble that of France. Political chaosterminal inaction is prohibiting essential efforts at forging fictitious consolidation. Similar to the U.S., both countries are dealing with profound political realities in the context of budget deficits and growing debt levels. As these negotiations go on, observers are voicing increasing alarm. They fear for the long-term sustainability of the UK state, and thus its ability to service its debts.
The pressure on Reeves is palpable. She must navigate a complex landscape of rising costs and public expectations while attempting to reassure markets about the viability of the UK’s fiscal policies. Expectations for any interest rate increase this year are fading fast. Now, these expectations have been moved beyond even March 2026, making her position even more untenable.
Implications for the Pound and Future Fiscal Policies
Following the release of the public sector finance data, the pound experienced an intense volatility. It fell beneath $1.34 CAD per USD. This drop highlights investor fears about the UK’s fiscal position and the possible consequences of mounting government debt. Economic analysts are intently watching these developments. Their argument is that continued borrowing at such extreme levels can erode confidence in the currency and prevent necessary future action toward overall economic recovery.
With unprecedented tax increases on the horizon, public reaction is hard to predict. Many citizens are concerned about how additional financial burdens may affect their livelihoods, especially amid rising living costs and inflationary pressures. Reeves’ upcoming budget will likely be a pivotal moment for her leadership and could shape public perception of Labour’s economic strategy.