The UK government could be forced to borrow tens of billions more than expected as the economic fallout from the Iran war begins to take hold. Early projections suggest a sharp shift in fiscal conditions despite recent improvements in borrowing figures.<\/p>\n\n\n\n
Official data shows borrowing fell in the last financial year, offering short-term relief to the Treasury<\/strong>. Yet economists warn that rising energy costs, inflation pressures and labour market strain could quickly reverse that trend in the year ahead.<\/p>\n\n\n\n Government borrowing totalled \u00a3132 billion<\/strong> in the year to March, nearly \u00a320 billion lower than the previous year and slightly below forecasts. According to the Office for National Statistics, March borrowing alone reached \u00a312.6 <\/strong>billion, marking the lowest figure for that month since 2022, though still higher than expected.<\/p>\n\n\n\n This relative improvement may prove temporary. Economists point to the economic shock linked to the Iran war, particularly through higher energy prices, as a key risk to public finances. Elliott Jordan-Doak<\/a>, senior UK economist at Pantheon Macroeconomics, said the outlook for 2026\/27 appears \u201cmore daunting\u201d, suggesting current gains could fade.<\/p>\n\n\n\n Higher fuel prices are already affecting households and businesses, while also generating increased VAT revenues for the Treasury. There are also expectations of additional income from windfall taxes on North Sea energy producers. However, these gains may be outweighed by broader economic damage, including reduced tax receipts from slower growth.<\/p>\n\n\n\n The government is also under pressure to provide support for low-income households and energy-intensive industries facing rising costs. This could further strain public spending at a time when fiscal flexibility is limited.<\/p>\n\n\n\nEnergy Shock and Rising Costs Threaten Fiscal Stability<\/strong><\/h2>\n\n\n\n