UK borrowing surpasses expectations with £24.3bn deficit in April; retail sales decline amid fuel conservation
Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK, warns that public finances are "only likely to get worse."
"It now looks inevitable that government borrowing will soar past the £115.5bn that the OBR expected for this financial year back in March. Indeed, a weaker economy, rising unemployment rate, soaring gilt yields and some additional fiscal support for households and businesses will combine to push borrowing significantly higher this year. We have pencilled in an additional £20bn to £30bn of borrowing this year."
He further explained that if gilt yields remain around current levels through to the next budget, the chancellor will probably lose around £10bn of headroom in 2029/30 against her fiscal rules. Pugh noted that this does not preclude a larger bailout now, provided it is temporary. The real constraint on borrowing, he said, is the financial markets. With 10-year gilt yields already above 5% and the budget deficit above 4%, the UK is entering the crisis in a precarious fiscal position.
"That tough fiscal picture will remain the same for whoever ends up in Downing Street later this year. The government is facing serious fiscal pressure from the war in Iran. The risk is that a sharp increase in borrowing, and borrowing costs, this year means a bigger adjustment is needed by the end of the decade to stick to the fiscal rules."
According to Pantheon Macroeconomics, debt interest costs in 2026/27 will be approximately £15bn higher than assumed in the Budget if gilt yields hold at current levels for the remainder of the year.
Chief economist Rob Woods said:
"Headroom against the fiscal rules would be cut by closer to £10B if half the rise in yields since the Budget is sustained until 2029/20. As best we can tell, political risk has added 20-to-40bp to gilt yields and we suspect will keep borrowing costs more elevated than they otherwise would be this year. Either a more left-leaning Prime Minister will take over, or the current PM will shift further leftwards. Granted, Mr. Burnham will stick to the fiscal rules. But doing so could be hard given the government’s unpopularity, and in any case tax hikes to fund spending plans could undermine growth and worsen the fiscal arithmetic."
Introduction: UK borrowing hits £24.3bn in April; retail sales drop as Iran war weighs on confidence
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK government borrowing reached its second-highest level for April on record, as pressure on public finances continues to intensify.
Official figures released on Friday showed a £24.3bn deficit in the UK’s finances last month.
A poll of economists had forecast a £20.9bn deficit for April.
This development is unwelcome for Chancellor Rachel Reeves, as the government prepares for the full impact of the energy shock in the Middle East and manages uncertainty surrounding Keir Starmer’s leadership.
Grant Fitzner, chief economist at the Office for National Statistics, 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."
"Borrowing for the latest full financial year was revised down slightly, and on a comparable basis remains the lowest since the year ending March 2020."
Lucy Rigby, chief secretary to the Treasury, commented:
"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 £20 billion last year - while driving growth through £120 billion of additional capital investment over the Parliament. Working families have benefited from falls in inflation and cuts to interest rates - and our non-negotiable fiscal rules will be all the more important to continue to protect them as we face the consequences of the war that we have played no part in."
The Office for National Statistics also released new retail sales figures this morning, indicating a 1.3% drop in volumes in April, as consumers reduced their fuel purchases. This decline exceeded the expected 0.6% fall, according to .
"After strong growth last month, motor fuel sales fell in April, with evidence suggesting motorists were conserving fuel after stocking up in March. These subdued fuel purchases contributed to a sizeable monthly fall for total retail sales in April. Fuel sales were down 10% in the month," the ONS reported.
Retail sales excluding fuel declined by 0.4% month-on-month, with decreases across all categories except food, which saw a 0.9% increase.
The agenda
7am BST: ONS public finances for April
3pm BST: University of Michigan survey of US consumer confidence
