The UK borrowed more than expected in April as high inflation drove up the cost of pensions and benefits, with concern over the Iran war and political uncertainty adding to debt costs.
Borrowing Figures Exceed Forecasts
The Office for National Statistics (ONS) said public sector net borrowing – the difference between government spending and income – was £24.3bn in April 2026, £4.9bn higher than in April 2025. Amid bond market jitters over the Middle East conflict and a Labour leadership challenge, the figure was £3.4bn higher than forecast by City economists and the Office for Budget Responsibility.
Debt Interest Payments Reach Record High
Rising borrowing costs on financial markets drove the UK’s debt interest payments to £10.3bn in April, £900m more than a year ago and the highest in any April on record. Grant Fitzner, the ONS chief economist, said: “Borrowing this month was substantially higher than in April last year and although receipts increased compared with April 2025, this was more than offset by higher spending on benefits and other costs.”
Bond Market Pressure and Political Uncertainty
UK borrowing costs on financial markets have risen in recent weeks. With Keir Starmer’s grip on power appearing to be fading, UK government bonds, known as gilts, have come under heavy selling pressure. Amid febrile conditions in global markets, investors fear his successor as prime minister would add to borrowing. Earlier this week the International Monetary Fund urged the UK to “stay the course” on the chancellor Rachel Reeves’s plan to cut borrowing, as it warned the government lacked room to add significantly to its already elevated debt levels.
Martin Beck, the chief economist at the consultancy WPI Strategy, said: “A future prime minister may rail against being ‘in hock’ to the bond markets, but that’s a difficult argument to sustain for a government on course to borrow well over £100bn this year and dependent on investor willingness to fund its deficit.” With Starmer’s cabinet under pressure amid the threat of a leadership challenge by Andy Burnham, the business secretary, Peter Kyle, said that the government was “acutely aware” of the risks from higher borrowing costs after Liz Truss’s mini-budget in 2022.
Spending Outstrips Income
In its analysis of the public finances, the OBR said government receipts had been bolstered by PAYE income tax and national insurance contributions. This partly reflected a bumper month for finance industry pay, including an almost 10% jump in bonuses compared to a year earlier. However, spending outstripped income on the month, as inflation-linked increases in many benefits and the pensions triple lock hit the exchequer. The ONS said net social benefits paid by central government rose by £2.7bn to £29.5bn for the month.
Triple Lock Under Scrutiny
Reeves has faced calls to scrap the triple lock amid growing pressure on the public finances and other demands on spending. Last month Tony Blair’s thinktank urged Labour to ditch the policy, saying Britain’s ageing population meant it would cost an extra £85bn a year by 2070. The triple lock guarantees that the basic and new state pensions will rise every April by whichever is highest: inflation, average wage growth or 2.5%.
Support Package Amid Iran War
The chancellor this week announced a sweeping support package in response to the Iran war, including extending a cut in fuel duty, free bus fares for under-16s in England and cuts to VAT on summer attractions such as theme parks and soft-play centres. Amid concerns over the impact of the Iran war, Ruth Gregory, the deputy chief UK economist at Capital Economics, said rising gilt yields, a weaker economic outlook and the cost of the support package could result in the budget deficit overshooting official forecasts by about £32bn this year.
Fragile Public Finances
“The big picture is that the UK’s public finances are fragile. That won’t change whoever is prime minister,” she said. However, the OBR said the figures for the first month of the new financial year were “highly provisional” and would offer limited information on the future path for borrowing. The UK defied expectations to record a stronger-than-anticipated economic performance at the start of 2026, before the outbreak of the Iran war.
Highlighting the strength of the economy, the ONS revised down its borrowing estimate for the financial year ended in March 2026 by £3bn to £129bn. This was 15% lower than the borrowing figure a year earlier, and £3.7bn below the official forecasts made by the OBR. Lucy Rigby, the chief secretary to the Treasury, said: “Earlier this week the IMF agreed we had the right economic plan to reduce the deficit. We are cutting borrowing and debt – with our actions reducing government borrowing by over £20bn last year – while driving growth through £120bn of additional capital investment over the parliament.”
