UK government borrowing has surged far beyond expectations, as rising debt interest costs and market turmoil push the public finances under increasing strain and heap pressure on the government.
The government borrowed £14.3 billion in February, well above the £8.5 billion forecast by analysts and the £7.4 billion expected by the Office for Budget Responsibility, according to the Office for National Statistics.
It marks the second-highest February borrowing figure on record outside the Covid crisis, underscoring the growing challenge facing Rachel Reeves.
The overshoot was driven largely by a sharp rise in debt interest payments, which jumped to £13 billion in February, up from £2.1 billion the previous month and £7.5 billion a year earlier.
Market turmoil feeds into rising costs
The surge in borrowing comes as UK government borrowing costs have climbed to their highest level since 2008, reflecting a sharp shift in market sentiment.
The yield on the benchmark 10-year UK government bond has risen to around 5 per cent in recent days, up from roughly 4.6 to 4.7 per cent earlier this month.
Bond yields rise when prices fall, meaning investors are demanding higher returns to hold UK government debt amid mounting concerns over inflation and interest rates.
Oil surge fuels inflation fears
The sell-off in bond markets has been driven in part by a jump in global energy prices.
Brent crude has traded between roughly 108 dollars and 119 dollars per barrel during March, as tensions in the Middle East raise fears of supply disruption. Higher energy prices are expected to feed through into inflation, increasing pressure on policymakers.
The UK is particularly exposed to such shocks, with rising energy costs feeding quickly into household bills and business expenses.
Markets turn on rate outlook
Investors have rapidly shifted their expectations for interest rates. Only weeks ago, markets were anticipating cuts from the Bank of England. That view has now reversed sharply, with traders increasingly pricing in the possibility of multiple rate rises in 2026 if inflation proves persistent.
The shift has pushed borrowing costs higher across the economy, with mortgage rates expected to follow.
Growing concern over fiscal direction
The rise in borrowing costs has also renewed scrutiny of the government’s fiscal stance.
The UK’s debt remains close to 100 per cent of GDP, leaving the public finances highly sensitive to rising yields. At the same time, reports that senior figures, including Lisa Nandy, have discussed revisiting fiscal rules have raised concerns among investors about the government’s commitment to maintaining discipline.
Even the suggestion of looser fiscal policy can unsettle markets, particularly at a time when inflation risks are already elevated.
Opposition attacks Labour over borrowing surge
Critics said the figures exposed a widening gap between Labour’s promises on economic stability and the reality of rising borrowing.
Mel Stride said the latest data showed the government was failing to get a grip on the public finances.
He said:
“Labour has increased taxes and yet borrowing continues to rise. February borrowing alone reached £14.3 billion, one of the highest levels for that month outside the pandemic.
“Debt interest costs are now running at extremely elevated levels, placing a growing burden on taxpayers.
“We are in danger of passing unsustainable levels of debt onto the next generation if spending is not brought under control.”
The government now faces the challenge of maintaining market confidence while dealing with rising inflation risks and weaker growth prospects.
With borrowing costs climbing and expectations for interest rate rises increasing, pressure is building on ministers to demonstrate a clear and credible fiscal strategy.
For households facing higher mortgage costs and for taxpayers facing rising debt interest bills, the distinction between global and domestic causes may offer little reassurance.
