UK government borrowing falls but Iran war clouds economic outlook

UK government borrowing fell by £19.8 billion to £132 billion in the year to March 2026, according to the Office for National Statistics (ONS).

This borrowing level is the lowest since before the Covid-19 pandemic, with March borrowing at £12.6 billion, the lowest March figure since 2022.

Despite this improvement, analysts warn that the outlook for UK public finances is uncertain due to the ongoing Iran war and its impact on energy prices.

The International Monetary Fund (IMF) has predicted that the UK will be the hardest hit among advanced economies by the energy shock resulting from the conflict.

Ruth Gregory, deputy chief UK economist at Capital Economics, noted that the full impact of the energy price shock is yet to be felt.

She forecasted that borrowing could rise from £132 billion in 2025/26 to about £145 billion in the current year, driven by targeted energy price support measures estimated at £20 billion, high interest rates, and a weakening economy.

Elliott Jordan-Doak, senior UK economist at Pantheon Economics, estimated that government interest payments will increase by about £12 billion this year, and any further fiscal support for households or businesses will require additional borrowing.

ONS senior statistician Tom Davis said that although spending has risen this financial year, this was more than offset by increased tax receipts.

Chief Secretary to the Treasury James Murray stated that the reduction in the deficit reflects the government's plan to cut borrowing amid a volatile global environment.

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