TL;DR
Get your next haul delivered free — and shop member deals
- Fast, free delivery on millions of items
- Access to Prime Big Deal Days deals on October 6–7
- Prime Video, Amazon Music and more included
The Office for Budget Responsibility forecasts that UK debt interest payments will rise to £117 billion in 2027/28, exceeding its £96.5 billion estimate for public sector net borrowing that year. Higher borrowing costs could further narrow Chancellor John Healey’s room to meet fiscal rules, though the OBR’s updated Budget forecasts are not yet published.
The UK government’s forecast debt interest bill is set to reach £117 billion in 2027/28, exceeding the £96.5 billion forecast for public sector net borrowing that year, according to Office for Budget Responsibility figures cited by This Is Money. The projection adds pressure on Chancellor John Healey as he prepares his first Budget, scheduled for October 28.
The OBR’s figures put debt interest payments at £109 billion in 2025/26, rising to £117 billion in 2027/28. The comparison is between the cost of servicing existing government debt and the forecast amount the government will borrow that year to cover the gap between its revenues and spending. It does not mean that interest payments are themselves new borrowing.
The report says market borrowing costs have risen sharply, increasing the cost of issuing or refinancing government debt. It also reports that yields on UK government bonds recently topped 6 per cent, describing Britain as the first G7 economy to pass that level since the eurozone crisis. Bond yields change with market conditions, and the report links the recent move to a wider global bond-market sell-off.
Economists cited in the report warn that the OBR’s March projections may understate future costs if inflation and borrowing rates remain higher. Capital Economics estimates debt interest could reach £149 billion in 2030/31, compared with the OBR’s £137 billion forecast, and projects a five-year total of £682 billion—about £58 billion above the OBR figure. Those are independent forecasts, not official revised estimates.
Less Budget Room for Healey
Higher debt servicing costs compete with other demands on public money. The report estimates that interest payments account for £8 of every £100 in government spending, funds that cannot also be used for public services, defence or tax reductions. The final effect depends on the government’s overall revenues, spending plans and borrowing costs; an interest bill is not a direct measure of cuts to any particular service.
The pressure also bears on Healey’s fiscal rules, which the report describes as requiring borrowing to fall by the end of the forecast period. It says the Chancellor’s fiscal headroom has already been reduced by half to about £12 billion as bond yields have risen. If the updated forecast shows higher costs or weaker revenues, the government may have less room to meet its rules without changing taxes or spending. The size of any adjustment is not yet confirmed.
As an affiliate, we earn on qualifying purchases.
Why UK Debt Costs Are High
The report puts UK national debt at nearly £3 trillion and says it is at its highest level relative to the economy since the early 1960s. A portion of the debt is index-linked, meaning payments on it move with inflation. According to the report, about one quarter of UK debt is linked to inflation, leaving government interest costs more exposed when prices rise than they would be on fixed-rate debt alone.
Public finances were also affected by the pandemic and the energy-price shock following Russia’s invasion of Ukraine. The report says higher inflation contributed to higher interest rates as policymakers sought to contain price rises, while inflation-linked debt raised the Treasury’s costs. It also cites an ongoing market premium associated by some experts with the 2022 mini-Budget under Liz Truss, whose unfunded tax-cut plans unsettled financial markets. These factors form background to the current pressure; the figures do not isolate how much each one contributes.
““It’s a landmark no government wants to reach.””
— Paul Dales, chief UK economist at Capital Economics
As an affiliate, we earn on qualifying purchases.
Updated Forecasts Still Pending
The OBR is preparing updated forecasts for the October 28 Budget and declined to comment, according to the report. Until those figures are published, it is unclear whether the official projections will be revised to reflect recent bond-market movements, or how much those movements will add to the government’s eventual interest bill.
Economists’ estimates vary and depend on assumptions about inflation, interest rates and economic growth. Capital Economics’ higher five-year cost estimate and Oxford Economics’ annual estimates are not official forecasts. The report also does not provide a confirmed breakdown of what tax rises or spending changes Healey might choose if the government’s fiscal room narrows.
financial literacy books for beginners
As an affiliate, we earn on qualifying purchases.
As an affiliate, we earn on qualifying purchases.
Budget Forecast Due October 28
The next key development is the OBR’s updated forecast alongside Healey’s Budget, scheduled for October 28. It should show how the official outlook for debt interest, borrowing and the government’s fiscal headroom has changed. The Chancellor has said the government will meet its fiscal rules, according to the Treasury statement quoted in the report.
Investors and public-service departments will be watching the updated figures for indications of whether higher debt costs require changes to the government’s plans. No specific tax or spending measures are confirmed in the source material. The scale of any response will depend on the OBR’s projections and the government’s Budget decisions.
As an affiliate, we earn on qualifying purchases.
Key Questions
What does the OBR forecast for debt interest?
The figures cited in the report forecast £117 billion in debt interest payments in 2027/28, up from £109 billion in 2025/26.
How does that compare with government borrowing?
The report gives an OBR estimate of £96.5 billion in public sector net borrowing in 2027/28. The projected interest bill is larger, but the two figures measure different things: debt servicing costs and new borrowing to cover the annual gap between revenue and spending.
Could the interest bill be higher than the OBR forecast?
Some economists cited by This Is Money think it could be. Capital Economics estimates a £682 billion total over five years, around £58 billion more than the OBR figure, but this remains an independent forecast rather than an updated official estimate.
What does the projection mean for Healey’s Budget?
Higher interest costs could reduce the government’s room to meet its fiscal rules and fund other priorities. Whether Healey changes taxes or spending will depend on the updated OBR forecasts and the Budget; the source report confirms no specific measures.
When will the official outlook be updated?
The Budget is scheduled for October 28, 2026, with updated OBR forecasts being prepared for it, according to the report.
Source: rss
Fall Picks
fall essentials
As an affiliate, we earn on qualifying purchases.
