Debt under pressure: Government responds with tactical borrowing shift

The UK government is adopting a strategic shift in its borrowing approach, placing greater emphasis on shorter-term debt instruments in response to evolving market dynamics. 

The move aims to manage borrowing costs more effectively as the UK’s debt continues to expand. Borrowing in 2024/25 was £148 billion, according to the Office for National Statistics (ONS), £17 billion more than the financial year to April 2024, and £11 billion more than the Office for Budget Responsibility forecast in March 2025.

This put public sector net det at 95.8% of GDP at the end of April 2025, which equates to an eye-watering £2.45 trillion* and an interest payment, according to the Office for Budget Responsibility, of £105 billion. To put this into context, this is £16 billion more than the government spent on education in the year and more than half of the government’s biggest cost line: health. 

Reducing this number by any means is clearly in the country’s best interests. However, without a change in strategy, the number is likely to become significantly larger owing to recent increases in the cost of long-term debt. 

Yields on long-term government bonds have risen steeply across the globe in response to fiscal uncertainties delivered firstly by Donald Trump’s “Liberation Day” tariffs and now by his “One Big Beautiful Bill Act”. Longer-term gilt yields have also risen in response to the Labour government’s substantial spending commitments. With shorter-term debt currently more affordable, the government has little choice but to adjust its borrowing approach.

Any adjustment of this kind would also align the UK more closely with global norms. The UK’s current average debt maturity of 14 years is significantly higher than most countries and over twice that of US treasuries, in part as the result of UK pension funds historic low tolerance to volatility. It is expected UK gilts issued in the coming quarter will average a nine-year maturity date.

The strategic changes follow sustained dialogue between market participants and the Debt Management Office, demonstrating the government’s willingness to listen and a commitment to agile debt management. Although shorter-term borrowing can increase exposure to future interest rate fluctuations, this proactive step by the government to navigate today’s difficult fiscal challenges should be welcomed.