UK Borrowing Hits £24.3bn in April as Interest Rates Break April Record

A bumper crop and £10.3bn of debt repayments have wiped another financial head on Rachel Reeves’ plans, leaving the Chancellor with little wiggle room ahead of the Autumn Budget, and SMEs once again preparing for the results.

Britain’s public finances opened the 2026/27 financial year behind, with the public’s share of borrowing rising to £24.3 billion in April, the highest reading for April since the pandemic closed in 2020 and £3.4 billion more than the £20.9 billion reported by the Budget Office.

Figures published on Friday by the Office for National Statistics showed that the bill was £4.9 billion, or almost a quarter, bigger than the same month last year, when borrowing came in at £20.2 billion and had already prompted warnings about the fragility of the Treasury’s finances.

The figure that stood out, was not the episode that made the headlines but the cost of servicing the national debt. Interest payments alone reached £10.3 billion in April, the highest on record for the opening month of any financial year. Britain now spends more than £100bn a year on its massive debt, roughly equivalent to England’s annual schools budget.

Gilt products strengthen the thread

The figures come at a critical time for the gilt market. The yield on 10-year UK government bonds, a common proxy for new government borrowing costs, touched a new 2008 high last week before retreating slightly after Andy Burnham, the mayor of Greater Manchester widely seen as a potential challenger to the prime minister, has publicly pledged to respect financial rules if he takes the top job.

That intervention dampened spirits in the City but did not repair the damage. Bond market analysts pointed out that the recent rise in yields – documented in a previous report on 10-year instruments breaching the 5 percent threshold for the first time in 18 years – will affect May’s borrowing figures and beyond, as each rise in yields raises the Treasury coupon it must issue a new one.

The higher yield will also eat into the £22 billion of Chancellor’s headroom restored in November’s Budget. As Business Matters has previously reported, that patchwork is already exposed to political volatility, weak immigration projections and soft growth, a combination that has been enough to push the chancellor into tax hikes or spending cuts.

IMF approval, but with a caveat

The International Monetary Fund, closing its 2026 Article IV mission to the UK earlier this week, applauded the deficit reduction targets included in the government’s fiscal rules and the recent decision to make the Autumn Budget the only financial event. But the Fund has also warned that any attempt to reduce the rate of consolidation would risk a strong reaction in the gilt market, which has been volatile for the past two days.

For all the pressure on the Treasury, there was plenty of good news in the data. The ONS revised up its borrowing estimate for the full year 2025/26 by £3 billion, taking it to the lowest level since the pandemic six years ago. Tax receipts were also higher than last year, although profits were more than offset by higher costs in benefits and other day-to-day operating costs.

Grant Fitzner, ONS chief economist, commented: “Borrowing this month was significantly higher than in April last year and although receipts increased compared to April 2025, this was more than offset by higher spending on benefits and other costs.”

SME implications: cooler tiles, more expensive

For small and medium-sized businesses, the learning curve is two-fold. First, the cost of debt. Gilt products underpin the exchange rates that determine fixed-rate corporate and commercial mortgages, meaning the higher cost of government borrowing is already flowing through the lending desks of high street banks and challenger banks. Owner managers refinancing this summer should expect quotes to come in much stronger than they would in the spring.

Second, to seek. Separate ONS data published on Friday showed retail sales prices contracted by 0.4 per cent in April after a modest 0.1 per cent gain in March, a reminder that the consumer engine is revving even before further monetary tightening in the autumn. Hotel, fashion and home goods operators in particular will be watching May’s figures closely.

The political figures are sharpening again. As the financial buffer is reduced, the scope of the Ministry of Finance to extend the relief of business rates, to stop the fuel tax and or to shelter SMEs from the continuing employer in the rise of National Insurance appears to be very difficult during the week. Whether the Chancellor chooses to plug the gap with new funding measures, door-to-door tightening or a quiet loosening of funding rules will spell the fall for Britain’s 5.5 million small businesses.

Meanwhile, the message from April’s numbers is not clear: the debt interest rate is no longer something to be explained in the Budget Red Book, it is a story.