UK public sector borrowing reached £24.3bn in April 2026, the highest April figure since the start of the Covid pandemic. That was £4.9bn higher than April 2025 and £3.4bn above the OBR’s forecast of £20.9bn. One month of data should not be over-interpreted, but this was still a poor start to the financial year and a reminder that the government’s fiscal position remains vulnerable.
This is not a story about tax revenue falling. Central government receipts rose by £2.4bn, including a £1.8bn increase in tax receipts. The problem was that spending rose faster. Central government current expenditure increased by £6.2bn to £101.1bn, with net social benefits up £2.7bn and departmental spending on goods and services up £1.7bn. In plain terms, inflation-linked benefits, State Pension rises and the growing cost of delivering public services are putting serious pressure on the public finances.
Debt interest remains the clearest warning light. Central government debt interest payable reached £10.3bn in April, up £0.9bn from a year earlier and the highest April figure on record. A key driver was the UK’s stock of index-linked gilts, where RPI movements affect the accrued cost of debt. In April, the inflation-linked capital uplift added £2.9bn to the debt interest bill.
The UK is already carrying a large debt burden with public sector net debt standing at 94.2% of GDP. Borrowing in the financial year to March 2026 was £129.0bn, down from £151.8bn a year earlier. The deficit has fallen, but it remains high. With debt interest costs still elevated, the government has very little room for error, and the current instability at the top of the Labour Party is only adding to the sense of political and fiscal uncertainty.
While CPI inflation fell to 2.8% in April from 3.3% in March, it still remains above the Bank of England’s 2% target and is expected to rise sharply later this year as the effects of the Middle East conflict feed through to the economy. The Bank of England’s April Monetary Policy Report notes that higher energy prices are already affecting fuel costs and are expected to pass through into utility bills, food prices and wider supply chains over the coming months. Motor fuel prices have already risen sharply, with overall motor fuel prices up 23.0% over the year.
VAT data suggests slower growth in consumer spending and weaker economic momentum. VAT receipts were only £0.2bn higher in April 2026 than a year earlier on an accrued basis, pointing to softer taxable spending once inflation is stripped out.
That leaves monetary policy in an awkward position. With inflation still above target and expected to rise again, further monetary tightening is difficult to justify when activity is already weakening. The Bank of England needs to remain alert to second-round effects in wage and price-setting, but raising rates further would risk adding unnecessary pressure to households, businesses and the wider economy.
The MPC hiking Bank Rate will not necessarily mean higher long-term gilt yields. If markets believe further tightening will bring inflation under control and weaken demand further, they may price in lower future inflation and earlier rate cuts. This can pull down longer-dated gilt yields and flatten or invert the yield curve, even as short-term rates rise.
For treasury teams, this is where the macro story becomes a strategy decision. Hope is not a borrowing strategy.
Arlingclose can help clients turn the economic backdrop into practical treasury decisions. Our economic and interest rate forecasting supports borrowing and investment strategy, including when to fix longer-term borrowing, when to retain flexibility through shorter-term debt, and how to assess the trade-off between cost certainty and potential savings.
Please contact us if you would like to discuss how the current outlook should feed into your borrowing plans, investment strategy and overall treasury risk management.
22/05/2026
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