Headlines about UK public finances often mix up the deficit, the debt and the interest bill, which measure different things. This guide separates them, using the latest Office for National Statistics (ONS) release, covering August 2026.
What do the latest public finance figures say?
According to the ONS bulletin published on 22 September 2026, public sector net borrowing in August 2026 was £18.3 billion. Over the financial year to August 2026, borrowing was £77.3 billion, equal to 2.5% of GDP. That was £2.2 billion lower than the same period a year earlier, but £8.1 billion above the forecast made by the Office for Budget Responsibility (OBR).
At the end of August 2026, public sector net debt was £2,985.5 billion, or 93.8% of GDP, according to the ONS. The ONS said the debt-to-GDP ratio was lower than a year earlier and below the OBR forecast, because nominal GDP grew faster than net debt.
Those few lines already contain three separate ideas: a monthly flow, a cumulative stock and a ratio. The sections below take each in turn.
Deficit and debt: what is the difference?
The ONS defines public sector net borrowing as the gap between total public sector spending and income. A positive figure is a deficit and a negative figure is a surplus. It is a flow, like the amount you overspend in a month.
Public sector net debt is a stock. It is what the public sector owes to the private sector and overseas, minus its liquid financial assets, and the ONS notes it is often referred to as the national debt. It is the accumulated total of past borrowing, like the outstanding balance on a credit card.
A deficit adds to debt, but the two can move differently. Borrowing can fall while debt keeps rising, because a smaller deficit still adds something to the pile. Only a surplus, where income exceeds spending, would tend to reduce the cash total.
Why can debt rise in pounds but fall as a share of GDP?
The ratio of debt to GDP compares what is owed with the size of the economy, measured in current prices. If the economy’s money value grows faster than the debt, the ratio falls even though the pound total climbs.
Illustrative arithmetic
Take a starting ratio of 93.8%. Suppose debt rises by 3% over a year while nominal GDP rises by 4%. The new ratio is 93.8% × 1.03 ÷ 1.04, which is about 92.9%. The debt grew, yet the ratio fell by roughly 0.9 percentage points. These growth rates are invented for the example and are not forecasts.
This is the mechanism the ONS pointed to for August 2026. Nominal GDP includes both real growth and price rises, so inflation can flatter the ratio, which is one reason analysts watch real growth too. Readers interested in how growth estimates are built and revised can see how UK GDP is measured and revised.
Which measure of debt is the headline?
The ONS publishes more than one. Net debt, at £2,985.5 billion, is the best-known. A broader measure, public sector net financial liabilities, stood at £2,620.4 billion, or 82.3% of GDP, at the end of August 2026, according to the ONS. It includes a wider set of financial assets and liabilities.
| Measure (end August 2026) | £ billion | Share of GDP |
|---|---|---|
| Public sector net debt | 2,985.5 | 93.8% |
| Public sector net financial liabilities | 2,620.4 | 82.3% |
The difference between the two is £365.1 billion (2,985.5 minus 2,620.4). Neither measure is wrong; they answer different questions, so comparisons only make sense when the same measure is used on both sides.
What is the current budget deficit?
Borrowing includes capital investment such as roads and hospitals. The ONS also reports a current budget deficit, which is the gap between current spending and receipts after depreciation, covering day-to-day costs rather than investment.
In August 2026 the current budget deficit was £12.4 billion. In the financial year to August 2026 it was £51.9 billion, which the ONS said was £2.9 billion less than a year earlier but £4.8 billion above the OBR forecast. The difference between total borrowing (£77.3 billion) and the current deficit (£51.9 billion) is £25.4 billion, the part of borrowing that sits outside the day-to-day measure.
Why does debt interest attract so much attention?
Debt interest is the price the government pays to carry its borrowing. According to the ONS, central government debt interest payable in August 2026 was £8.8 billion, the highest August figure since monthly records began in 1997.
Of that, £2.1 billion reflected the uplift to the capital value of index-linked gilts, which follows the Retail Prices Index. The ONS attributed this largely to a 0.3% rise in RPI between May and June 2026. That leaves £6.7 billion of other interest in the month (8.8 minus 2.1).
Index-linked gilts show how inflation reaches the public finances directly: when prices rise, the government’s liabilities on these bonds rise too. For background on how gilt pricing feeds into wider borrowing costs, see why gilt yields matter to everyday borrowers.
How do official forecasts fit in?
The OBR produces the forecasts against which the ONS compares outturns. Being above forecast, as year-to-date borrowing was by £8.1 billion, does not by itself say what will happen for the full year. Monthly figures swing with the timing of tax payments, and with the timing of other receipts and payments.
Borrowing can also be revised later. As with growth data, early public finance estimates are refined as more complete information arrives, so a single month is a weak guide.
How do interest rates and inflation connect to all this?
Higher interest rates make new borrowing costlier and gradually raise the interest cost as old gilts are refinanced. Inflation lifts the cost of index-linked debt but also raises nominal tax receipts and nominal GDP. Those effects pull in different directions, which is why the same economic backdrop can both worsen the interest bill and improve the debt ratio.
For the transmission from policy rates to the wider economy, see why Bank of England rate decisions ripple through the economy. For how price data is constructed, see what inflation figures really tell us.
A short checklist for reading the next release
The next ONS public sector finances release was scheduled for 21 October 2026. When it arrives, these questions help separate signal from noise:
- Is the figure a monthly flow, a year-to-date total or a stock of debt?
- Is it compared with last year, or with the OBR forecast?
- Is it in pounds or as a share of GDP?
- Does the debt interest figure include the index-linked gilt uplift?
- Is the measure net debt or the broader net financial liabilities?
Reading the numbers without overreading them
The August 2026 figures show a government borrowing somewhat less than a year earlier but more than forecast, with debt close to £3 trillion yet falling relative to GDP and interest costs at a record for the month. Each statement is true at once because deficit, debt and the ratio measure different things.
Knowing which is which is the most useful habit when the next set of headlines arrives.
This article is general information, not personalised financial advice. Rules and rates change.
Sources: Office for National Statistics
