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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. The figures add to Chancellor John Healey’s Budget challenge, while outside economists warn that higher borrowing costs could push the bill above the OBR forecast.
The UK government’s debt interest bill is forecast to reach £117 billion in 2027-28, exceeding the £96.5 billion projected for public sector net borrowing that year, according to figures from the Office for Budget Responsibility (OBR). The forecast puts further pressure on Chancellor John Healey as he prepares his first Budget, scheduled for October 28.
The OBR’s figures show debt interest rising from £109 billion in 2025-26 to £117 billion in 2027-28. The comparison is between the cost of servicing accumulated government debt and the amount the public sector is forecast to borrow in that later year; the two measures describe different parts of the public finances.
Economists quoted by This Is Money said the government’s eventual interest costs could be higher if borrowing rates remain elevated. Capital Economics forecasts a £149 billion annual bill in 2030-31, against the OBR’s March forecast of £137 billion, and estimates a £682 billion total over five years. Oxford Economics’ Andrew Goodwin said payments could be £9 billion to £10 billion higher in each year. These are independent estimates, not revised OBR forecasts.
The report says debt interest currently takes £8 of every £100 of government spending. Higher payments leave less room for other spending or tax reductions. The OBR is updating its forecasts ahead of the Budget and declined to comment to This Is Money.
Interest Costs Squeeze Budget Choices
The forecast matters because interest payments are a recurring call on public funds, rather than money available for new services or tax cuts. If the bill grows faster than expected, Healey may have less room to meet spending commitments while complying with the government’s fiscal rules.
This Is Money reports the Chancellor’s available fiscal headroom has already fallen by about half, to around £12 billion, as bond yields have risen. That estimate is reported by the outlet; the precise headroom will depend on the OBR’s updated assessment. If forecasts worsen, the government could face difficult choices over taxes, spending or whether its stated fiscal targets remain achievable.
The OBR figure does not mean the government is already unable to pay its bills. It signals that the cost of existing debt is becoming a larger budget constraint. The effect on public services and tax decisions will depend on the Budget measures and the updated forecasts.
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Why UK Debt Costs Are Rising
The report links the increase to higher borrowing costs and the scale of the national debt, which it puts at nearly £3 trillion. It also says the debt is at its highest level relative to the economy since the early 1960s. Bond yields, which influence the cost of issuing government debt, rose during a broader market sell-off in the days before the report.
About a quarter of UK government debt is index-linked, according to the report, meaning some payments rise with inflation. That structure raised costs as inflation climbed after the pandemic and Russia’s invasion of Ukraine contributed to an energy-price shock. The report also points to the 2022 mini-Budget under Liz Truss, which unsettled markets; economists describe an ongoing reputational cost as a “moron premium.”
Britain’s borrowing costs were reported to have topped 6 per cent shortly before publication. The report says this was the first time a G7 economy had crossed that level since the eurozone crisis. The figure concerns market borrowing costs, not a single rate applying uniformly to all government debt.
“It’s a landmark no government wants to reach.”
— Paul Dales, chief UK economist at Capital Economics
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Final Forecasts Still Pending
The £117 billion figure is an OBR forecast, not a final outturn. The office is preparing updated projections for the Budget, and the report does not provide the revised numbers. Future interest costs could change with inflation, market yields, economic growth and government borrowing.
It is also unclear whether the independent estimates cited will prove accurate, or what tax and spending choices Healey will make in response. The Treasury says the government will meet its fiscal rules, but the report does not set out a detailed plan for preserving its headroom if borrowing costs rise further.
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October Budget Sets Next Test
The next major milestone is the Budget on October 28, when Healey is expected to set out the government’s tax and spending plans. The OBR’s updated forecast, due alongside the Budget, will show whether its assessment of debt interest, borrowing and fiscal headroom has changed.
Investors and public-service departments will be watching for evidence of how the government intends to meet its fiscal rules and manage debt costs. Until those updated projections and policy decisions are published, the final size of the pressure on the Budget remains unsettled.
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Key Questions
How much is the UK debt interest bill forecast to be?
The OBR forecast cited by This Is Money puts the bill at £117 billion in 2027-28, up from £109 billion in 2025-26.
What does it mean for interest payments to exceed borrowing?
It means the forecast cost of servicing existing government debt is larger than the forecast amount of new public sector borrowing in that year. These are separate measures of public finances, and the comparison does not mean the government has stopped borrowing.
Could the debt interest bill be higher than the OBR forecast?
Some economists cited in the report think it could be. Capital Economics and Oxford Economics offer higher estimates, but these are independent forecasts rather than official OBR figures.
When will the government explain its response?
Chancellor John Healey’s Budget is scheduled for October 28. The OBR is updating its forecasts ahead of the announcement.
Source: rss
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