<div id="readability-page-1"><div> By Paul Hannon <pre></pre> The U.K. government narrowed its budget deficit for the fiscal year that ended at the start of April, but further progress in reducing borrowing is likely to be challenging if the conflict in the Middle East is prolonged. As elsewhere, the Covid-19 pandemic was extremely costly for the government, which has struggled to reduce the gap between spending and revenues after an initial drop as the economy reopened. However, the Office for National Statistics said Thursday the budget deficit narrowed to 4.3% of gross domestic product from 5.2% in the previous fiscal year. That was in line with the government's expectations. It was the smallest deficit since the fiscal year ending 2020, before the outbreak of the pandemic. The narrowing included a drop in borrowing during March to 12.6 billion pounds ($17.01 billion) from 14 billion pounds a year earlier. For the year as a whole, borrowing totaled 132 billion pounds, down from 151.9 billion pounds. The deficit narrowed despite a rise in interest payments to 97.6 billion pounds from 85.4 billion pounds, the second-highest amount on record. As a result of the additional borrowing, the government's net debt rose to 93.8% of GDP from 93.2%, staying around levels last seen in the early 1960s, when the debts accumulated during World War II were still being repaid. The Office for Budget Responsibility projected a further decline in the deficit to 3.6% of economic output in the current fiscal year. But that now seems unlikely, since the surge in energy prices that followed the Iran conflict is likely to slow economic growth and reduce tax revenues. The government has already announced a small package to help some households immediately disadvantaged by the rise in energy prices, and is likely to do more if the disruption is sustained. The ONS said revenues from a tax on fuels such as gasoline fell in March to its lowest level since July 2023, an indication that Britons are cutting back on purchases in response to higher prices. Hopes for a decline in borrowing over coming years had led to a gradual fall in yields on U.K. government borrowing following the November budget, which saw a fresh set of tax rises. However, yields have surged as the war in the Middle East has dragged on, partly reflecting expectations that inflation and the Bank of England's key interest rate will be higher than previously anticipated. Over time, that could add to the already high cost of paying interest on the government's debts. The current government and its predecessor have found it difficult to lower borrowing costs. That is partly because of the high cost of providing support to households as energy prices surged in the wake of Russia's 2022 invasion of Ukraine, and also due to the higher cost of borrowing that followed a bond-market crash triggered by then-Prime Minister Liz Truss' surprise tax cuts later that year. Treasury chief Rachel Reeves has pledged to cut borrowing and announced a series of tax rises and spending cuts that have contributed to her government's slide in the opinion polls. The threat of a fresh rise in borrowing if the conflict in the Middle East proves long-lasting helps explain the frustration that Reeves expressed during the spring meetings last week of the International Monetary Fund in Washington D.C. &#34;I feel very frustrated and angry that the U.S. went into this war without a clear exit plan, without a clear idea of what they were trying to achieve,&#34; she told the U.K.'s Mirror newspaper. <pre></pre> Write to Paul Hannon at paul.hannon@wsj.com <pre></pre> (END) Dow Jones Newswires April 23, 2026 03:28 ET (07:28 GMT)Copyright (c) 2026 Dow Jones &amp; Company, Inc.</div></div>

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The U.K. government reported its smallest budget deficit since the pandemic, narrowing to 4.3% of GDP for the fiscal year ending in April, down from 5.2% the previous year. Despite a decrease in borrowing, challenges remain due to rising interest payments and potential economic slowdowns from ongoing Middle East conflicts. The government anticipates a further decline in the deficit to 3.6% this fiscal year, but this may be hindered by increased energy prices and reduced tax revenues. Treasury chief Rachel Reeves has committed to cutting borrowing amid rising public frustration.

- The U.K. government narrowed its budget deficit to 4.3% of GDP, down from 5.2% the previous fiscal year, marking the smallest deficit since before the pandemic.  
- Despite a decrease in borrowing to 132 billion pounds, rising interest payments and the prolonged Middle Eastern conflict may hinder further deficit reduction and economic growth.  
- Treasury chief Rachel Reeves emphasized the need for fiscal restraint but expressed frustration over the geopolitical situation's impact on borrowing costs.

U.K. Budget Deficit Was Smallest Since Pandemic — Update