UK Government Borrowing higher than expected: What that means for real estate

Official figures show the government borrowed more than expected in the year to March due to increased spending on pay and benefits. Borrowing was £151.9bn in the year to March, up £20.7bn from the year before and significantly higher than the £137.3bn predicted by the UK's official forecaster.

The Office for National Statistics (ONS), which released the figures, said borrowing for the financial year was the third highest on record.

Debt remained close to the annual output of the economy, levels of debt last seen in rebuilding post-war Britain, in the early 1960s.

IDRE expects the chancellor, despite making promises not to, will have to make further spending cuts and tax increases at the next budget to stay within her self-imposed borrowing limits.

This comes at a time when IMF (International Monetary Fund) growth figures of 1.6% have been reduced to 1.1% as a result of US trade tariffs creating an international slower growth environment.

Banks however are predicting 3 more 25bps interest rate cuts before the end of the year with the first taking place at the 8th May meeting, as inflation, which is likely to rise in April will slowly fall to around 2.2% by the end of 2026. The year-end bank rate is expected to be between 3.5% and 3.75%.

Conclusion

US trade tariffs have clearly caused turbulence in the market, but we expect trade deals will limit the full force of their potential impact.

Inflationary increases on pay and benefits is negatively impacting U.K. debt, and increased tax on businesses has held off businesses growth strategies, but interest rate cuts and improved sentiment in commercial real estate means now is a great time to invest.

Investors that “move first” when acquiring assets, will benefit from significant yield compression, which alongside asset management for value-add assets, will drive further returns. We are seeing increased activity from occupiers and investors and we expect this to continue into 2026.