Britain's budget deficit for the last financial year narrowed to a six-year low as a percentage of economic output although borrowing for March alone exceeded forecasts, official data showed on Thursday. The Office for National Statistics reported 132.0 billion pounds ($178.1 billion) of public sector net borrowing in the 2025/26 financial year that ended in March. That was 0.7 billion pounds less than the most recent forecast from the Office for Budget Responsibility and down from 151.9 billion pounds in 2024/25. Equivalent to 4.3% of economic output - in line with the OBR prediction - the deficit was the smallest since the 2019/20 financial year, which ended just as the response to the COVID-19 pandemic caused debt to soar. Debt interest spending in 2025/26 was 97.6 billion pounds, up from 85.4 billion pounds a year previously and marking the second-highest figure in cash terms since 2022/23, when inflation soared after Russia's invasion of Ukraine. Last week, the International Monetary Fund cut Britain's economic growth forecasts for 2026 by more than for any other Group of Seven nation due to the country's exposure to higher energy prices with its heavy use of natural gas. "A more stagflationary backdrop is forecast to take shape, with speculation already building about the impact of weaker growth on the Chancellor's headroom," Nabil Taleb, economist at PwC UK, said, referring to Reeves' ability to meet her borrowing target. "Recent moves in bond markets, with gilt yields briefly touching 5% for the first time since 2008 before easing, also highlight the UK's vulnerability to uncertainty." In March alone, the ONS reported public sector net borrowing of 12.6 billion pounds. Economists polled by Reuters had a median forecast of a 10.3 billion-pound deficit for the month.
