The UK government’s borrowing for the financial year ending in March amounted to £132 billion, narrowly undershooting the Office for Budget Responsibility’s (OBR) forecast by £700 million, according to figures released by the Office for National Statistics (ONS). This total represents a £19.8 billion reduction from the previous year’s borrowing of £151.9 billion, marking the lowest deficit in three years and the best outcome since the Labour administration assumed power in July 2024.

Despite the improvement, borrowing remains the sixth highest on record. The last fiscal year with lower borrowing was the year ending in March 2023, when the government borrowed £127.3 billion. For the month of March alone, public sector net borrowing stood at £12.6 billion, a decrease of £1.4 billion compared to March 2023 and the lowest monthly figure since March 2022. However, this figure was higher than the £10.3 billion anticipated by financial analysts.

Economists attributed the stronger-than-expected annual performance partly to revised ONS data for previous months, increased tax revenues, and lower interest payments on government debt. Elliott Jordan-Doak, a senior UK economist at Pantheon Macroeconomics, described the results as a positive development for the chancellor.

James Murray, Chief Secretary to the Treasury, emphasized that the reduction in the deficit reflects the government’s strategic efforts to cut borrowing. He pointed to measures aimed at controlling costs, enhancing energy security, and managing debt as key factors behind the improved fiscal position.

However, some analysts forecast that the gains may be short-lived. Ruth Gregory, deputy chief UK economist at Capital Economics, cautioned that the fiscal outlook could deteriorate due to rising energy prices stemming from recent geopolitical tensions involving Iran. She warned that the government borrowing could exceed OBR projections by approximately £29 billion in the 2026-27 fiscal year and remain higher by around £13 billion in subsequent years.

The evolving global environment, particularly the impact of the Iran conflict, is expected to challenge the government’s fiscal “headroom,” raising concerns about the sustainability of borrowing reductions achieved this year.