UK Government Borrowing Surges in May
UK government borrowing rose significantly more than expected in May as higher inflation increased the cost of servicing index-linked debt, according to official figures released on Friday.
The British government recorded a budget deficit of £23.3 billion, or approximately $30.7 billion, during the month. This represented a 30% increase compared with May last year.
The figure was also considerably higher than economists had predicted. A Reuters survey had forecast a broadly unchanged deficit of £18.5 billion.
Inflation Raises UK Debt Costs
Britain has historically issued a larger proportion of index-linked government debt than many other countries. Interest payments and repayments on this debt are connected to retail price inflation, with a three-month delay.
UK retail price inflation stood at 3.1% in May and had been even higher earlier in the year. As a result, the government faced a sharp increase in debt-servicing expenses.
Debt interest costs in May were 54% higher than a year earlier. The Office for National Statistics also warned that these expenses were likely to increase further in the following month’s figures.
Borrowing Exceeds Official Forecasts
In March, before the full economic impact of the US-Iran war became clear, the Office for Budget Responsibility forecast that Britain would record a £115.5 billion deficit during the 2026/27 financial year.
That estimate was equivalent to 3.6% of national income, down from 4.3% in the previous financial year.
However, public sector net borrowing reached £46.3 billion during the first two months of the financial year. This was 24% higher than during the same period in 2025 and well above the OBR forecast of £38.6 billion.
Matt Swannell, chief economic adviser at the ITEM Club, said questions remained over whether the government’s current plans would be enough to bring public borrowing under control.
UK Bond Yields Reach Multi-Year Highs
Pressure on Britain’s public finances has also affected the government bond market. Last week, the UK offered investors its highest yield since at least 1998 when it sold £9 billion of 15-year government debt.
The government is also facing difficulties financing additional defence spending while remaining within its existing fiscal rules and honouring previous commitments to other departments.
These tensions reportedly contributed to Defence Minister John Healey’s resignation in protest last week.
Benefits and Public Spending Continue to Rise
Tax receipts and other government revenues have increased by 4.1% so far this year. However, government expenses have also continued to climb.
The cost of benefits, including state pensions, rose by 7.4%, while spending on public services increased by 2.9%.
The latest figures add further pressure on the UK government as it attempts to reduce borrowing, manage rising debt costs and meet its broader spending commitments.
