UK Government Borrowing Falls, But Future Costs May Rise

UK government borrowing for the year ending March 2026 fell by £19.8 billion to £132 billion. This is lower than the previous year but higher than expected for March.
By Newsroom | Finance, United Kingdom |

Yearly Debt Down, March Figures Higher Than Anticipated

Government borrowing for the financial year ending March fell by £19.8 billion, reaching £132 billion. This marks a 13.1% decrease from the previous year, with the Office for National Statistics (ONS) reporting it as the lowest level since 2019-20, a period just before the pandemic's onset. The figures, as a proportion of gross domestic product (GDP), also dipped to their lowest point since that pre-pandemic time.

However, the March borrowing figure itself stood at £12.6 billion. While this was £1.4 billion less than in March of the previous year and the lowest for a March month since 2022, it was still higher than what analysts had projected. This monthly increase is attributed, in part, to higher public sector spending on goods and services, coupled with pay awards.

Economic Headwinds and Future Projections

"We continue to think that the combination of some targeted energy price support, totalling about £20bn, high interest rates and the weakening economy will mean borrowing rises from £132bn in 2025/26 to about £145bn this year."

Analysts express caution, warning that borrowing could increase in the current financial year. This projection is influenced by several factors:

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  • The ongoing Iran war and its potential economic repercussions for the UK.

  • The continued impact of high interest rates.

  • A generally weakening economy.

  • The £20 billion allocated for energy price support measures.

This outlook suggests a potential rise in borrowing to approximately £145 billion in the coming year, diverging from the recent downward trend.

Tax Inflows and Spending Pressures

Recent data indicates a rise in tax receipts, particularly from higher national insurance contributions levied on employers. This rise, however, occurred alongside an increase in state spending, notably on public sector wages and services, contributing to the higher-than-expected March borrowing. These fiscal dynamics put pressure on the government ahead of its upcoming spending review.

Background Narratives

The Office for National Statistics (ONS) is the body responsible for releasing these figures, providing data on public finances. Reports from entities like CapitalEconomics offer interpretations of these statistics, contributing to broader economic commentary. The economic context is further complicated by global events, such as the ongoing conflict involving Iran and its impact on energy markets, with oil prices reportedly exceeding $100 a barrel amid tensions in the Strait of Hormuz. Several companies have publicly stated their concerns about the potential business impacts stemming from the Iran war.

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Frequently Asked Questions

Q: Why did UK government borrowing fall in the year ending March 2026?
Government borrowing fell by £19.8 billion to £132 billion in the year ending March 2026. This was the lowest level since before the pandemic started in 2019-20.
Q: Was the borrowing figure for March 2026 higher than expected?
Yes, the borrowing figure for March 2026 was £12.6 billion. While this was less than the previous March, it was still higher than what analysts had predicted.
Q: What could cause government borrowing to increase in the next year?
Analysts think borrowing might rise to about £145 billion in the current financial year. This is because of the ongoing Iran war's economic effects, high interest rates, a weaker economy, and £20 billion set aside for energy support.
Q: What is causing the increase in government spending?
Government spending has increased on public sector wages and services. Higher national insurance contributions from employers helped bring in more tax money, but spending pressures are still high.