UK public finances recorded their biggest shortfall since the COVID-19 pandemic in April, in what could be an early sign of the budget pressure facing chancellor Rachel Reeves due to the Iran war.
Borrowing during the month rose 25 per cent from April last year to 24.3 billion pounds, the second-highest borrowing figure for April on record, official data showed on Friday.
A Reuters poll of economists had forecast a 20.9 billion-pound deficit in April, the first month of the financial year.
“This provides an early sign of the deterioration in the public finances that is inevitable over the coming quarters,” Ruth Gregory, deputy chief UK economist at Capital Economics, said.
Reeves, who has set a target of balancing day-to-day spending with tax revenues by the end of the decade, is under pressure to improve prime minister Keir Starmer’s standing in opinion polls amid concerns about his leadership.
The Iran war has added to Reeves’ challenge by increasing the risk of an economic slowdown that could hit tax revenues. Separate data released on Friday showed retail sales fell by the most in nearly a year in April.
The conflict has also pushed up borrowing costs and increased calls for more public spending to support households and businesses facing higher energy prices.
Reeves said on Thursday that she would raise more tax from oil and gas companies to help fund some support measures.
Figures from the Office for National Statistics showed government receipts in April rose 2.9 per cent from the same month in 2025, while spending increased 6.5 per cent.
Forecasts prepared by Britain’s budget watchdog before the Iran war showed public sector borrowing was expected to fall to 3.6 per cent of gross domestic product in the current tax year. That would have been the smallest deficit since before the COVID-19 pandemic.
However, Gregory said the combination of energy support measures, higher borrowing costs and weaker economic growth was likely to push the deficit to 4.6 per cent of GDP in the 12 months to the end of March 2027.
“Overall, the big picture is that the UK’s public finances are fragile. That won’t change whoever is prime minister,” she said.
Investors are also concerned about the possibility of a leadership change in Britain, with many Labour lawmakers calling for Starmer to step down.
His likely successor, Andy Burnham, has said he would continue with Reeves’ fiscal rules.
Rob Wood, chief UK economist at Pantheon Macroeconomics, said Burnham would have to introduce difficult measures if he became prime minister and wanted to stay on track with those rules.
“Tax hikes to fund spending plans could undermine growth and worsen the fiscal arithmetic,” Wood said.
The ONS said borrowing in the financial year ending in March was revised down by 3 billion pounds to 129 billion pounds, or 4.2 per cent of GDP, compared with 5.2 per cent in the 2024/25 tax year.
