Rachel Reeves is facing doubts over whether she can afford to help Brits with ‘Trumpflation’ today after grim government finance figures.
The public sector racked up the highest February borrowing on record outside of Covid at £14.3billion – far more than analysts had expected.
Bumper spending and debt interest payments outweighed a spike in revenues from Labour’s huge tax raids.
The gloomy picture came despite the Chancellor and Keir Starmer making clear they are ready to help households with a looming shock from Middle East carnage.
Markets suggest interest rates could now rise in the coming months, after the Bank of England warned over the impact of soaring oil and gas prices in the wake of the US-Israeli strikes.
Drivers are already feeling the pain at pumps, and energy bills are in line to rise by more than a fifth when the cap changes in July.
But Tory leader Kemi Badenoch warned that Ms Reeves had ‘maxxed out the credit card’ with ‘runaway welfare spending’, and left families at the mercy of global shockwaves.
The ONS said public sector borrowing was £2.2billion higher last month than in February 2025.
Most economists had pencilled in borrowing of £8.8billion.
Some of the deterioration was down to debt interest being paid at the beginning of February rather than the end of January, as a result of when the weekend fell. January had seen the Government enjoy a large surplus.
Over the 11 months of the financial year so far borrowing stood at £125.9billion, £11.9billion less than in the same period the previous year.
Central government raked in £1,016.7billion in revenues with one month left in the financial year – £79billion more than the equivalent period in 2024-25.
Some £32.7billion of that was extra income tax, £7.6billion VAT, and £4.3billion Corporation Tax.
But spending was up £65.2billion, including £20billion extra on social security – underpinned by a sharp rise in benefits levels – and a £13.5billion rise in debt servicing costs.
ONS senior statistician Tom Davies said: ‘Borrowing was higher than the same month last year and was the second-highest February figure on record.
‘While receipts were up on last year, that was outweighed by a rise in spending, including the later timing of some debt interest payments.
‘However, across the first eleven months of this financial year as a whole, borrowing was down, as receipts increased by more than spending.’
Susannah Streeter of Wealth Club said: ‘Although Rachel Reeves has previously said there is room for some financial support to help alleviate high energy costs for businesses and consumers, she is highly constrained.
‘The longer the conflict continues, the less fiscal firepower the Government will have to provide meaningful stimulus to an economy that was already stagnating before the conflict escalated.’
The Bank of England warned yesterday that the growing conflict in the Middle East could send inflation spiralling and trigger a surge in unemployment – and any ‘protracted’ shock could force it to put up rates.
Markets have been placing bets on three base-rate increases of a quarter point, which could add around £100 a month to repayments on a £250,000 mortgage.
After freezing interest rates at 3.75 per cent, BoE governor Andrew Bailey said: ‘War in the Middle East has pushed up global energy prices. You can already see that at the petrol pump and, if it lasts, it will feed into higher household bills.’
Many of the cheapest mortgage deals have been withdrawn in recent days. Most energy deals offering rates below the price cap had also been pulled by last night.
Analysts had predicted two more interest rate cuts this year, but those expectations have been thrown into reverse as experts warn the world faces crippling ‘Trumpflation’.
Aviation chiefs warned that travellers faced a summer of price rises and cancellations as a global shortage of jet fuel started to bite.
Keir Starmer chaired an emergency meeting of the Government’s Cobra emergency committee yesterday to discuss the economic impact of the war on the cost of living.
Downing Street urged all sides in the conflict to ‘de-escalate’.
British military planners are also working on a strategy to protect tankers that have been unable to pass through the Strait of Hormuz following attacks by Iran.
But defence sources acknowledge privately that it will be almost impossible to reopen the vital shipping route – which usually carries a fifth of the world’s oil – until the conflict cools.
The crisis is a political disaster for Sir Keir, who put living costs at the heart of Labour’s agenda at the start of this year and asked to be judged on his success in bringing them down.
Soaring energy costs now threaten to wreck any progress, as well as blowing a hole in the public finances. Ministers admit they may need to fund a major bailout to help with energy bills if the crisis continues beyond the current price cap at the end of June.
The PM’s spokesman said: ‘We have been clear that the Government will fight people’s corner to tackle the costof-living crisis.’
Downing Street insisted that petrol stations in the UK were ‘well stocked’ and urged drivers to ‘fill up as normal’. Ministers have already warned petrol retailers against ‘price-gouging’.
No10 said it was also talking to airlines about ensuring a supply of jet fuel and limiting increases to ticket prices. It warned the travel insurance industry to brace itself for ‘an increase in claims’ and urged airlines to keep tickets ‘fairly and appropriately priced’.
Responding to the borrowing figures, Chief Secretary to the Treasury James Murray said: ‘We have the right economic plan. Because of the choices we made before the conflict in the Middle East began, we are better prepared for a more volatile world. We doubled our headroom and borrowing was forecast to be lower than the G7 average.
‘We know there is more to do to. We have to stop spending £1 in every £10 on debt interest, so more money can be spent on policing, schools and the NHS.’
Martin Beck, chief economist at WPI Strategy, 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.’
