Government borrowing jumped unexpectedly last month to the second highest February level since records began amid warnings of a “double squeeze” for the public finances from the Iran conflict.
The Office for National Statistics (ONS) said public sector borrowing stood at £14.3 billion in February, £2.2 billion higher than a year ago and nearly double the £7.4 billion forecast by the UK’s fiscal watchdog, the Office for Budget Responsibility (OBR), in November last year.
It defied expectations for a fall, with most economists expecting borrowing of £8.8 billion for February.
Borrowing for the 11 months of the financial year to March so far stood at £125.9 billion, £11.9 billion less than in the same period the previous year and £1.9 billion below the OBR’s November forecast of £127.8 billion.
This puts the UK on track to slightly undershoot the OBR’s full-year borrowing forecast of £138.3 billion, according to Martin Beck, chief economist at WPI Strategy.
But he warned over an upcoming knock to the public finances if the Iran war is prolonged.
He said: “That the deficit numbers are broadly on track will be a welcome development for a government keen to preserve fiscal credibility at a time of unwelcome geopolitical and economic turbulence.
“But that turbulence means the recent fiscal numbers may prove a poor guide to what comes next.
“The shock to energy prices creates a double squeeze for the public finances if it persists.
“Higher oil and gas prices would lift North Sea revenues, and stronger inflation could boost receipts from VAT and frozen tax allowances, but those gains would likely be outweighed by the damage to tax revenues from weaker growth and higher public spending on welfare, debt interest costs, and pressure for fiscal support for households and energy-intensive businesses.”