LONDON, May 22 - Britain’s public finances opened the financial year with a substantial shortfall as borrowing for April reached 24.3 billion pounds, official figures showed. The April total is the second-largest for that month on record.
A poll of economists had pointed to a 20.9 billion-pound deficit for April, making the outturn larger than market expectations for the first month of the tax year.
Budget forecasters in early March had projected that public sector borrowing would fall to 3.6% of gross domestic product in the 2026/27 tax year. That projected rate would represent the smallest deficit since before the COVID-19 pandemic, according to the forecasters' assessment.
However, officials and ministers have flagged new pressures on the public finances. The war in Iran has been cited as a factor that raises the risk of an economic slowdown, a scenario that could reduce tax revenues. In addition, the conflict has amplified calls on the government to increase support for households and businesses facing an energy price shock.
Responding to those pressures, finance minister Rachel Reeves said on Thursday that she would raise more tax from oil and gas companies to help fund support measures aimed at protecting households and businesses from higher energy costs.
Political uncertainty is also weighing on investor sentiment. Many Labour lawmakers have called for Prime Minister Keir Starmer to step down, creating concern about possible changes in political leadership. Andy Burnham, the Manchester mayor identified by many as Starmer’s most likely successor, has stated he would maintain the fiscal rules currently being pursued by the finance minister.
Market context for sterling was provided alongside the fiscal update, with the exchange rate set at $1 = 0.7448 pounds.
As the government navigates the larger-than-expected April borrowing, officials will face competing demands: sustaining a path toward the forecasters' deficit target while addressing immediate pressures from energy prices and geopolitical risk. The interplay between fiscal policy decisions and political developments will be watched closely by investors and market participants.