The Chancellor Rachel Reeves will come under pressure to hike taxes or slash spending after borrowing costs skyrocketed to their highest level since the 2008 financial crash on Friday, economists warn. The bleak borrowing numbers compounded a gilt sell-off on worries over soaring inflation and rising interest rates.

It comes after official figures showed Government borrowing last month jumped unexpectedly to the second highest February level since records began, adding to worries over an impending crisis for the public finances from the Iran war and surging inflation. US-Israeli attacks on Iran late last month triggered retaliations by Tehran against US bases in the Gulf. They also closed the Strait of Hormuz, a vital trade route, triggering an economic shocks across the globe.

The Bank of England held interest rates on Thursday and warned over sharply higher inflation that raised the spectre of possible rate hikes if the war and energy price shock is prolonged.

This had already sent gilt yields racing higher, with the latest public finance statistics adding to the woes and compounding the headache for Ms Reeves as it sent borrowing costs rising.

The Office for National Statistics (ONS) said public sector borrowing stood at £14.3 billion in February, £2.2 billion higher than a year ago and nearly double the £7.4 billion forecast by the UK’s fiscal watchdog, the Office for Budget Responsibility (OBR), in November last year.

It defied expectations for a fall, with most economists expecting borrowing of £8.8 billion for February.

Borrowing for the 11 months of the financial year to March so far stood at £125.9 billion, £11.9 billion less than in the same period the previous year and £1.9 billion below the OBR’s November forecast of £127.8 billion.

Experts cautioned the rising gilts yields will leave Ms Reeves will little firepower to protect households from the impending energy bill shock caused by the war.

Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said: “We estimate that increases in gilt yields will cut the Chancellor’s headroom by £7.1 billion in 2030/31, if sustained at current levels.”

“The Chancellor will again have to make difficult decisions in the autumn budget unless hostilities end quickly and energy prices subside,” he warned.

Martin Beck, chief economist at WPI Strategy told The Telegraph: “The risk is that an energy shock, even one that isn’t long-lasting, could leave the UK with higher underlying inflation, higher interest rates, weaker real incomes, lower investment and a smaller economy and tax base by 2029-30.

“If that happens, the Chancellor may need tax rises or spending restraint later to restore compliance with the fiscal rules.”

Former Institute for Fiscal Studies (IFS) director Paul Johnson said the Treasury may have to be “flexible” with its fiscal rules to avoid tax hikes, as “this is the kind of situation in which you may not want to be increasing taxes or cutting spending in order to keep borrowing down”.

James Murray, Chief Secretary to the Treasury, said: “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.”