Finance
UK Budget Deficit Jumped in February as Iran War Darkens Fiscal Outlook
Published by Global Banking & Finance Review®
Posted on March 20, 2026
3 min readLast updated: March 20, 2026
Quick Summary
UK public sector net borrowing in February surged to £14.3 bn—well above the £8.5 bn forecast—driven by debt interest timing and spiking energy costs from the Iran war, threatening to further strain fiscal stability.
UK borrowing jumped in February before Iran war risks to budget
By Andy Bruce
Britain's Borrowing Surge and Economic Pressures
MANCHESTER, England, March 20 (Reuters) - Britain's government borrowed a lot more than expected in February, in part due to the erratic timing of debt interest payments, before the shock of the Iran war pushed up borrowing costs and led to calls for more public spending.
Public Sector Net Borrowing Figures
Public sector net borrowing was 14.3 billion pounds ($19.17 billion) in February, official figures showed on Friday.
Economists polled by Reuters had a median forecast of an 8.5 billion-pound deficit for the month.
Factors Behind the Borrowing Increase
The Office for National Statistics cited the timing of debt interest payments as a factor behind the 18% increase in borrowing compared with February 2025.
The ONS revised higher its estimate for January's record surplus to 31.9 billion pounds from 30.3 billion pounds previously but the data underscored the broader picture of vulnerable public finances, under strain on various fronts.
Impact of Iran War and Energy Prices
The U.S.-Israeli war on Iran and the ensuing surge in energy prices have sent British government borrowing costs soaring.
Britain's heavy reliance on imported natural gas and stubbornly higher inflation have driven a sharper selloff in its government bonds than that seen among international peers.
Government Response and Political Pressure
Pressure on Finance Minister
PRESSURE ON GOVERNMENT
Finance minister Rachel Reeves, whose budget plans were already facing tight constraints, is facing new demands to support consumers who will face higher bills and motor fuel costs later this year.
Calls for Support Measures
"The pressure on the government - from both within the Labour Party itself and the public - to cushion the blow to households from higher energy costs will be great," said Elliott Jordan-Doak, senior UK economist at consultancy Pantheon Macroeconomics.
"The chancellor (Reeves) will again have to make difficult decisions in the autumn budget unless hostilities (in the Gulf) end quickly and energy prices subside."
Market Reaction and Debt Interest Payments
Short-dated British gilts - an important source of funding for the government - suffered one of their worst days since modern records began on Thursday after some Bank of England officials warned of possible interest rate rises, compounding a sharp selloff after Iran's attacks on energy infrastructure.
The government recorded 13 billion pounds of debt interest payments in February, up from 7.5 billion pounds a year earlier due largely to the different timing of interest payable, the ONS said.
Outlook for Public Finances
With only one more month of the 2025/26 financial year to go, borrowing stands at 125.9 billion pounds, about 12% lower than in the same period of 2024/25.
The Office for Budget Responsibility last month forecast borrowing of 132.7 billion pounds, or 4.3% of economic output, over the 12 months.
That is expected to fall to 115.5 billion pounds in the next financial year, or 3.6% of economic output.
($1 = 0.7460 pounds)
(Reporting by Andy BruceEditing by William Schomberg and Gareth Jones)
Key Takeaways
- •February deficit hit £14.3 bn versus £8.5 bn forecast, due in part to timing of debt interest payments (ONS)
- •January surplus upticked to £31.9 bn, but energy-driven borrowing costs and gilt sell‑off add pressure
- •Geopolitical unrest in Iran has driven energy prices and UK borrowing costs sharply higher, complicating fiscal outlook
Frequently Asked Questions about UK budget deficit jumped in February as Iran war darkens fiscal outlook
1How much did the UK budget deficit increase in February?
The UK's public sector net borrowing was £14.3 billion in February, surpassing expectations.
2What factors contributed to the rise in the UK budget deficit?
The deficit increase was driven by higher debt interest payments and a surge in energy costs following the Iran war.
3How did energy prices affect UK public finances?
Energy prices soared after the Iran war, increasing government borrowing costs and putting further strain on public finances.
4What did the Office for National Statistics report about January's surplus?
The ONS revised January's surplus to £31.9 billion from £30.3 billion previously.
5How are interest rates related to the UK budget deficit?
Rising energy prices impact inflation and interest rates, which can increase public sector borrowing costs.