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The UK’s public finances are once again in the spotlight as new borrowing figures highlight both short-term improvements and long-term challenges. With the Autumn Budget 2025 fast approaching, investors and businesses alike are asking what these figures mean for policy direction, taxation, and fiscal strategy under Chancellor Rachel Reeves.
In this article, De Pointe Research examines the latest UK borrowing data, the risks associated with rising debt and gilt yields, and how these dynamics are likely to influence the upcoming Budget.
UK Borrowing: Latest Figures Show a Temporary Respite
According to the Office for National Statistics (ONS), UK public sector borrowing fell to £1.1 billion in July 2025, the lowest July figure in three years. This was £2.3 billion lower than in July 2024, providing the new Labour government with a modest reprieve.
So far this financial year, borrowing totals £60.0 billion, broadly in line with the Office for Budget Responsibility’s forecasts but still £6.7 billion higher than the same period last year.
Despite the slight improvement, public sector net debt now stands at 96.1% of GDP, a level last reached in the 1960s. Servicing this debt is becoming increasingly expensive: interest payments on government gilts are now among the largest items of government expenditure.
The Market’s Warning: Soaring Gilt Yields
Financial markets are signalling concern. The 30-year gilt yield recently hit 5.64%, the highest level since 1998. Rising yields increase the cost of new borrowing and reduce the Chancellor’s fiscal flexibility.
The result? The fiscal headroom available for Reeves to meet her debt-reduction rules has halved in recent months, dropping from around £9.9 billion to £5.3 billion.
For investors, this sends a clear message: the government’s room to manoeuvre is narrow, and markets will quickly punish any perception of fiscal irresponsibility.
Why Borrowing Levels Matter for the Autumn Budget 2025
The UK government has set strict fiscal rules:
- Day-to-day spending must be balanced by the 2029–30 fiscal year.
- The debt-to-GDP ratio must fall within five years.
Given the debt trajectory and rising borrowing costs, Reeves has limited choices. The Autumn Budget will therefore need to balance spending priorities with revenue-raising measures carefully.
Labour’s manifesto pledge not to increase income tax, National Insurance, or VAT removes three of the most direct levers, pushing policymakers toward alternative strategies.
Likely Tax Changes in the Autumn Budget
Analysts expect Reeves to use targeted tax changes to raise revenue without breaking Labour’s campaign commitments. Some of the most likely options include:
| Potential Measure | Rationale |
| National Insurance on rental income | Could raise around £2 billion annually, targeting landlords rather than wage earners. |
| Capital Gains Tax adjustments | Aligning CGT more closely with income tax could generate significant revenue, especially from property and investment sales. |
| Wealth and property taxes | “Mansion tax” style reforms or reforms to council tax bands could target high-value assets. |
| Pension tax relief changes | Reducing higher-rate relief or restricting salary sacrifice schemes would subtly increase Treasury receipts. |
| Threshold freezes | Continuing to freeze income tax and inheritance tax thresholds raises money via “fiscal drag.” |
These competing priorities will make it difficult for Reeves to keep overall spending growth in check, especially with debt interest consuming such a large slice of revenue.
Economic Risks: Inflation, Growth, and Investor Sentiment
The Autumn Budget also lands in a volatile macroeconomic climate:
- Inflation remains stubbornly close to 3%, despite the Bank of England’s base rate only marginally above it.
- Growth is sluggish, with business surveys showing weak activity in the services sector.
- Investor sentiment is fragile, reflected in bond markets demanding higher yields to hold UK debt.
This combination creates a fiscal “trilemma”: Reeves must support growth, maintain market confidence, and keep borrowing under control, all with little fiscal space.
What This Means for Investors
For investors, the Autumn Budget 2025 will be critical to watch. Several themes stand out:
- Taxation of assets and property is likely to increase, making tangible assets, such as art, gold, and collectables, attractive hedges.
- Higher borrowing costs – sustained high gilt yields may reduce demand for bonds, pushing investors toward alternative stores of value.
- Inflationary risk – while headline borrowing may fall, inflation erodes real returns, making diversification beyond traditional equities and bonds more critical.
At De Pointe Research, we continue to highlight the importance of allocating 10–20% of portfolios to alternative investments, such as fine art or gold, as a defensive measure against fiscal tightening and uncertain growth.
Expect a Targeted but Constrained Budget
The headline improvement in July’s borrowing figures offers Reeves a sliver of relief, but the broader picture is one of constraint. Debt levels near record highs, soaring gilt yields, and persistent inflation mean the Autumn Budget 2025 will almost certainly involve targeted tax rises and limited spending giveaways.
For businesses and investors, the key is to prepare for a climate of fiscal restraint and asset-focused taxation, while monitoring market reactions to Budget announcements.
The message is clear: the UK’s debt dynamics will shape not only government policy but also investment strategies for years to come.
