A sharp rise in British government borrowing has heightened concerns that ministers will have limited capacity to protect households from a looming rise in energy bills as geopolitical tensions raise inflation risks.
Official figures show public sector net borrowing reached 14.3 billion pounds in February, the second highest for the month on record and well above economists’ expectations of 8.8 billion pounds. The figure was also £2.2 billion higher than the same period last year, underlining increasing budget pressures even before the escalation of conflict in the Middle East.
Data published by the Office for National Statistics reflects a growing gap between government spending and tax revenue. While revenues rose, they were offset by higher spending and the timing of debt interest payments, highlighting the growing burden of servicing the UK’s national debt.
The deterioration in public finances comes at a critical time. Since the outbreak of the US-Israeli conflict with Iran, global energy markets have become volatile, driving up oil and gas prices and stoking fears of a new inflation shock.
Economists warn that this combination of higher borrowing and rising debt costs significantly limits the government’s ability to repeat the kind of large-scale energy support packages rolled out during the 2022 cost of living crisis.
Ruth Gregory, deputy chief UK economist at Capital Economics, said there was little room for maneuver. “We doubt that even in more extreme scenarios there is scope for a large fiscal support package like in 2022,” she said, adding that any help offered would likely be more limited due to the U.K.’s “worse fiscal position.”
That view was echoed by Charlie Bean, the former deputy governor of the Bank of England, who said the government no longer has the same financial flexibility it had during previous energy shocks.
The financial markets have already begun to react. The cost of government borrowing has risen sharply in recent weeks as investors factor in the prospect of higher inflation due to rising energy prices. This has increased the cost of servicing Britain’s mountain of debt, with around one in ten of public spending now going towards interest payments.
Danni Hewson, head of financial analysis at AJ Bell, said the latest lending figures made uncomfortable reading for the Treasury. “With the Chancellor under pressure to act quickly to protect households from the impact of the recent energy price shock, today’s figures will not make good reading,” she said.
The scale of the challenge is compounded by forecasts that household energy bills could rise by more than £300 from July, according to consultancy Cornwall Insight, although the final figure remains dependent on market movements.
While full-year borrowing remains lower than previously forecast, February’s increase highlights the volatility of the UK’s fiscal position. Analysts noted that some of the increase reflects technical factors, including the timing of debt interest payments, but the underlying trend remains worrisome.
Lindsay James, investment strategist at Quilter, said hopes of the government regaining control of public finances were short-lived. “There were glimmers of hope that borrowing would be curbed after January’s record surplus, but the latest data has put a quick end to that picture,” she said.
The UK’s debt burden remains high at 93.1 percent of GDP, close to levels last seen in the early 1960s, limiting the government’s ability to provide further fiscal stimulus without threatening market confidence.
Finance Minister James Murray stressed the government had the “right economic plan” and was prepared for a more volatile global environment. But political pressure is increasing, and critics argue that rising borrowing and debt costs are limiting the policy options available.
For households and businesses already struggling with high living costs, the message is becoming increasingly clear: any government intervention to offset rising energy bills is likely to be more targeted, modest and far less generous than in previous crises.
