UK Government borrowing jumps as debt interest costs hit record May high

The impact of Iran war pressures on UK public finances has been laid bare as official figures showed Government borrowing lifted to a higher-than-expected £23.3 billion last month after debt interest costs surged to a record May high.

The Office for National Statistics (ONS) said borrowing rose by nearly a third (30.4%), or £5.4 billion, compared with a year earlier and marked the second highest May on record, beaten only during the pandemic era.

It was also more than the £18.8 billion expected by most economists and the £17.7 billion forecast by the UK’s independent fiscal watchdog, the Office for Budget Responsibility (OBR).

The ONS said interest payable on Government debt jumped £4.1 billion to £11.7 billion – the highest ever recorded in any May – as rising Retail Prices Index (RPI) inflation impacted index-linked Government bonds.

Long-term Government borrowing costs have risen as the outlook for UK growth has weakened since the start of the Middle East conflict at the end of February and amid political uncertainty.

It comes amid political upheaval as Prime Minister Sir Keir Starmer is set to see a threat to his leadership from Andy Burnham, mayor of Manchester, who last night secured a victory in the Makerfield by-election, paving the way for him to mount a challenge.

Mr Burnham has recently sought to reassure financial markets, and bond markets in particular, by stating his support for the Chancellor’s existing fiscal rules – which aim to pay for day-to-day spending out of tax revenues by the end of this decade.

The latest borrowing figures highlight the scale of the challenge in sticking to the rules.

Shadow Chancellor Sir Mel Stride said: “Burnham claims he is committed to the fiscal rules, yet when asked he could not even say what they are.

“The bond markets are watching nervously and we have already been paying a Burnham penalty on our borrowing costs.”

The ONS said borrowing in the financial year so far to May stood at £46.3 billion, which is £8.9 billion – nearly a quarter – more than the same period a year earlier and £7.7 billion more than the forecast by the OBR.

Tom Davies, ONS senior statistician, said: “Borrowing in the first two months of the financial year was nearly £9 billion higher than the same period of 2025.

“Spending on debt interest, public services, investment and benefits all increased in May 2026, compared with last May, more than outweighing higher tax receipts.

Chief Secretary to the Treasury Lucy Rigby said: “Inflation has held steady and unemployment has fallen this week, but the war in the Middle East has clearly had an impact on economies around the world.

“We have the right economic plan to deal with these challenges – protecting families and businesses from rising costs, while cutting borrowing at a faster rate than any other G7 economy.”

Matt Swannell, chief economic adviser to the Item Club, cautioned the Iran war impact will take its toll on the public finances, despite an initial peace deal having been signed by the US and Iran.

He said: “With a ceasefire reached, energy prices have fallen back but are still higher than before the conflict.

“Weaker growth could weigh on tax revenues, while higher inflation and market interest rates will increase debt interest payments.”

He added: “The Government’s primary fiscal rule commits it to ensuring that it’s only borrowing to invest by 2029-2030.

“In its spring forecast, the OBR estimated that this would be met by a healthy margin.

“But several questions remain over whether the current plans will be sufficient to reduce public borrowing.”