By Paul Hannon
The U.K. government borrowed more in February than a year earlier, but was on track to reduce its budget deficit before the Iran conflict sent energy prices soaring and upended the economic outlook.
The Office for National Statistics said Friday that the government borrowed 14.3 billion pounds ($19.20 billion) in February, up 2.2 billion pounds from a year earlier as interest payments hit a record high. That brought total borrowing for the first 11 months of the fiscal year to 125.9 billion pounds, 11.9 billion pounds lower than in the same period the previous year.
Earlier this month, the Office for Budget Responsibility forecast that the gap between government spending and revenues would narrow to 4.3% of gross domestic product in the fiscal year ending in early April from 5.2% in the previous period. The budget deficit would continue to narrow over the coming years, it said.
However, the surge in energy prices after the U.S. and Israel attacked Iran will likely slow economic growth and reduce tax revenues. The government has already announced a small package to help some households immediately disadvantaged by the rise in energy prices, and is likely to do more if the disruption is sustained.
"The public finances will be hit hard if high energy prices persist for long," Elliott Jordan-Doak, an economist at Pantheon Macroeconomics, said in a note to clients. "The pressure on the government to cushion the blow to households from higher energy costs will be great."
Energy prices surged Thursday as attacks on Middle Eastern energy infrastructure exacerbated worries over prolonged and deeper supply disruptions.
Hopes for a decline in borrowing over coming years had led to a gradual fall in yields on U.K. government borrowing after the November budget, which saw a new set of tax rises announced for the next fiscal and subsequent years.
But yields have surged as the war in the Middle East has intensified. The Bank of England Thursday signaled that a cut in its key rate was no longer likely over coming months, and that it might have to increase borrowing costs if the rise in energy prices is sustained.
Following the release of the borrowing data, yields on 10-year government bonds climbed to the highest level since 2008.
The government's total debt stood at 93.1% of annual economic output at the end of February, levels last seen in the early 1960s.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
March 20, 2026 08:37 ET (12:37 GMT)
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