UK borrowing rises unexpectedly to £14.3bn in February | Government borrowing
Britain’s public finances showed a higher-than-expected monthly deficit of £14.3bn last month, official figures have revealed, as fears grow that the conflict in Iran could derail the government’s plans.
Figures from the Office for National Statistics (ONS) showed public sector net borrowing (the difference between spending and income) rose by £2.2bn year-on-year in February, £8.5bn above City economists’ forecasts.
The ONS said the data was affected by the timing of government debt repayments, with some falling in February rather than January.
It also raised its forecast for a January surplus, already a record for that month, to £31.9bn from £30.4bn previously; This was helped by the increase in tax payments, which increased the government’s revenues.
Chancellor Rachel Reeves has deliberately increased borrowing for investment projects since Labor came to power in 2024, but has also significantly increased taxes in a bid to reduce the current account deficit, which measures borrowing to cover day-to-day spending.
Recent data have shown progress on this measure; The current budget deficit was £62.1bn in the 11 months to February, down 21.1% on the same period last year.
Total borrowing of £125.9bn in the same period appeared likely to fall short of the Office for Budget Responsibility’s full year forecast of £138.3bn.
But it comes as analysts are increasingly concerned that rising energy prices, inflation and interest rates as a result of the conflict in the Middle East could jeopardize the £23bn hole the chancellor left in last autumn’s budget in breach of fiscal rules.
“Having deficit figures broadly on track would be a welcome development for a government keen to maintain its fiscal credibility at a time of unwelcome geopolitical and economic turbulence,” said Martin Beck, chief economist at WPI Strategy. “But this turbulence means the latest financial figures may be an inadequate guide to what happens next.”
Nabil Taleb, economist at consultancy PwC, said: “Rate cuts are inevitably being delayed, inflation now looks set to pick up again and growth remains weak.
“This combination risks putting new pressure on borrowing and leaving the public finances exposed, underlining how quickly the financial landscape can change.”
The government has repeatedly insisted that measures to contain inflation, including tax increases and cuts to energy bills from April, have put the economy in a stronger position to withstand whatever is to come.
Treasury Under Secretary James Murray said: “We have the right economic plan. We are better prepared for a more unstable world because of the choices we made before the conflict in the Middle East began.”
Labor had been hoping for further interest rate cuts from the Bank of England this year to boost consumer confidence and reduce borrowing costs for businesses.
But with oil prices rising above $100 a barrel and the key Strait of Hormuz still closed, the Bank’s nine-member monetary policy committee kept interest rates steady at 3.75% on Thursday and hinted they might raise them out of fear of a resurgence in inflation.
