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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 borrowing that year. The figures add pressure ahead of Chancellor John Healey’s Budget on October 28, though independent economists warn the interest bill could be higher if borrowing costs rise.
The UK’s debt interest bill is forecast to reach £117 billion in 2027/28, exceeding the £96.5 billion forecast for public sector borrowing that year, according to figures from the Office for Budget Responsibility (OBR). The projection adds pressure on Chancellor John Healey as he prepares his first Budget, scheduled for October 28, and seeks to meet the Government’s fiscal rules.
The OBR’s figures show debt interest payments rising from £109 billion in 2025/26 to £117 billion in 2027/28. That would mean more public money going to interest on existing debt than the amount the Government is forecast to borrow to balance its books in that year. The two figures measure different parts of the public finances: one is the cost of servicing accumulated debt, while the other is the projected borrowing requirement.
The forecast arrives amid a rise in UK government bond yields, which determine the cost of issuing or refinancing some government debt. The report said UK borrowing costs had topped 6 per cent days earlier, against the backdrop of a global bond-market sell-off. Debt interest already takes about £8 of every £100 in government spending, according to the report, limiting the share available for public services or tax reductions.
Economists cited by This Is Money warned that the OBR’s current estimates could be exceeded. Capital Economics expects annual debt interest to reach £149 billion in 2030/31, compared with the OBR’s March forecast of £137 billion. It estimates payments across the five years at £682 billion, around £58 billion above the OBR’s projection. These are independent forecasts, not official OBR figures.
Less Room for Budget Choices
A higher interest bill leaves the Treasury with fewer resources for other priorities, including public services, defence and tax policy. If the cost rises faster than forecast, Healey may have to weigh spending reductions or tax increases against the Government’s commitments. Those are possible responses, not decisions announced in the source report.
The pressure also bears on the Government’s fiscal rules, which require borrowing to fall by the end of the forecast period. The report said the Chancellor’s fiscal headroom had already fallen to around £12 billion, about half its previous level. Headroom is the margin between the forecast and the limits set by the rules; a smaller margin leaves less protection if economic conditions or borrowing costs worsen.
For households and businesses, bond-market movements matter because they influence the state’s financing costs and can affect wider interest rates. The immediate issue in this report is the effect on public finances; it does not establish how or when any particular change will reach household borrowing costs.
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Why UK Debt Costs Are Rising
The UK’s national debt is close to £3 trillion, according to the report, and is at its highest level relative to the economy since the early 1960s. The cost of servicing it depends in part on interest rates and inflation. Around a quarter of UK government debt is index-linked, meaning payments on that portion are tied to inflation, as the report describes.
Public finances have faced additional strain since the Covid pandemic and Russia’s invasion of Ukraine, which was followed by higher energy costs and inflation. The Bank of England raised interest rates to restrain inflation, while higher market yields have made government borrowing more expensive. The report also cited economists’ view that investors continue to price in a premium after the 2022 mini-Budget under Liz Truss, which proposed unfunded tax cuts and unsettled financial markets.
The OBR is updating its forecasts ahead of the Budget. The figures cited in the report are therefore a current official projection, not a final assessment of the Government’s finances at the time of the Budget.
“It’s a landmark no government wants to reach.”
— Paul Dales, chief UK economist at Capital Economics
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Forecasts Face Market Risks
The OBR’s updated assessment has not yet been published, and its forecasts could change before the Budget. It declined to comment to This Is Money while preparing the figures. The report does not specify the bond-yield assumptions behind the cited OBR estimates, so readers cannot determine from this material how much of the projected rise reflects market rates, inflation-linked payments or other factors.
The higher totals offered by Capital Economics and Oxford Economics are analysts’ projections, not confirmed future spending. The report links a potential further increase in borrowing costs to inflation risks, including the effects of conflict in the Middle East, but does not quantify how large that impact may be. It also remains unclear what tax or spending measures Healey will announce, or whether any such measures will be needed to meet the fiscal rules.
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OBR Forecast and Budget Due
The OBR is expected to publish its updated economic and fiscal forecasts alongside Healey’s Budget on October 28. Those figures should clarify whether the official estimate for debt interest, borrowing and the Chancellor’s fiscal headroom has changed since the current projections.
Healey and the Treasury will then set out the Government’s Budget decisions and explain how they fit its fiscal rules. Until those documents are released, the £117 billion figure remains a forecast for 2027/28, and the additional costs projected by private-sector economists remain estimates rather than confirmed liabilities.
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Key Questions
When is UK debt interest forecast to exceed borrowing?
The OBR figures cited in the report put debt interest at £117 billion in 2027/28, above the £96.5 billion public sector borrowing forecast for that year.
How much is the Government forecast to spend on debt interest?
The OBR projection cited by This Is Money rises from £109 billion in 2025/26 to £117 billion in 2027/28. Those figures are forecasts and may change in the OBR’s updated assessment.
Why could the final interest bill be higher?
Government borrowing costs have risen, and some UK debt payments are linked to inflation. Capital Economics and Oxford Economics have warned that payments could exceed the OBR’s estimates, but their figures are independent forecasts, not official totals.
What does this mean for John Healey’s Budget?
The projected interest costs reduce the room available for other spending or tax choices and add pressure on the Government’s fiscal rules. The source report does not say what measures Healey will take; the Budget is scheduled for October 28.
Source: rss
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