Like other western countries, the UK continues to run a budget deficit, currently of 69 billion pounds. However, as can be seen from the graphs below, several indicators suggest resilience. The pound's euro exchange rate sits near its 25-year median of 0.83, inflation has retreated from its 2022 peak of 11.6% to 3.8% and the 10-year yield has stabilized around 4.4%, well below the long-run median of approximately 6.4 %. Perhaps the most significant development since our last writing has been that the Bank of England has managed to reduce its balance sheet from a peak of 1117 billion pounds achieved in 2022 to £648 billion as of February 2026. Despite this welcomed 42 % decrease, the balance sheet remains at levels more than 13X higher than the early 2000’s, hardly a “return to normality” at least yet. At the same time, general government debt has reached a new all-time-high of 2995 billion pounds, which essentially matches UK’s annual GDP of 3026 billion pounds. Similarly, while the average interest paid on government debt has reduced to 2,9 %, clearly below both the recent 4,4 % peak, and average historical levels, annual interest expenses were still close to record high in 2025. Herein lies the familiar dilemma: When interest expenses run at all-time highs on a relatively low interest base, returning to historical interest rates to combat a possible inflation is difficult.