Pound tumbles as government borrowing overshoots, as tech results in focus

Yet again, the UK is borrowing at the rate it did during the Covid pandemic. Public sector net borrowing, excluding public sector banks, was £20.2bn in September 2025, £1.6bn more than September last year and the highest September borrowing for 5 years.

Under the current government borrowing has soared: the ONS said that borrowing from April to September  was a whopping £99.8bn, £11.5bn more than April – September 2024, and the second highest borrowing figure for this period since records began.

The exceptional step up in borrowing under Labour means that public sector net debt excluding public sector banks was 95.3% of GDP, 1% more than at the end of September 2024, and the highest level since the 1960s. Rachel Reeves’ new calculation of the public sector debt, which measures public sector net financial liabilities was 83.8% of GDP, still 3% higher than a year ago, but a more favourable figure than public sector debt.

The direction of travel for this budget seems clear

This is adding pressure to Rachel Reeves ahead of next month’s budget. She said after last year’s budget that she didn’t want to come back for more borrowing or more tax rises. She has already done the latter, borrowing has exploded this year, and she is expected to do the latter and raise tax at next month’s budget.

UK fiscal picture gets uglier in the UK

The raw public sector finance data is ugly in the UK, and it is getting uglier. To fix the public finances and get the economy onto a more secure footing, the government needs to employ fiscal consolidation measures. The UK may not be in France’s situation yet, but it is getting close. The UK’s budget deficit was 5.38% in Q2, compared to 5.8% for France.

France and UK, the fiscally sick men of Europe

It is hard not to compare France and the UK at this stage. France has political turmoil because it cannot push through fiscal consolidation measures. At the same time, as the debate about the sustainability of the UK state heats up, the UK has seen a sea change in the popularity of political parties, with Reform potentially on course to win the next general election. The current government may be spending at levels only seen during the pandemic, but it is not making boosting their popularity.

Debt interest payments triggering more borrowing

One reason for this is that the surge in borrowing last month is partly due to a 66% increase in debt interest payments to £9.7bn, which was a result of the surge in the retail price index in July, which increased the cost of servicing inflation-linked bonds. No wonder the government isn’t winning any extra supporters: they are borrowing more to fund previous borrowing, which is a debt doom loop.

The way out of this is not easy, but it does require getting professionals into the Treasury to restructure and manage the inflation-linked portion of UK government debt, because this is causing a huge fiscal burden and it could also turn into a political problem for the UK.

Pound drops, but yen in focus as Japan gets first female PM

The pound dropped on the back of this data, and GBP/USD is below $1.34. The pound is middle of the pack in the G10 FX space today, as the yen weakens on  the back of the news that Sanae Takaichi will become the first female prime minister in Japan’s history. Takaichi is expected to cut taxes and boost defense spending, she is also not a fan of interest rate hikes. The Nikkei is marching towards the 50,000 mark on the back of her ascent to the highest level of public office. There is now dwindling hope of a rate hike this year, with the first hike now not expected until March 2026.

Overall, today’s public finance figures in the UK suggest that 1, there are deep set financial [problems in the UK, and 2, the November budget is now virtually assured to be painful for all, without public sector spending consolidation.

Elsewhere, stock index futures are higher across Europe,  but the rally in the US is at risk of stalling, as Nasdaq futures point lower as we wait for tonight’s Netflix results for further direction.