U.K. Government Borrowing Rises for Second Month — 2nd Update

By Paul Hannon

Borrowing by the U.K. government was higher in May than a year earlier, a second straight month of increase that suggests the government is finding it difficult to deliver planned reductions in its budget deficit at a time when the conflict in the Middle East has slowed growth.

The Office for National Statistics Friday said the government borrowed 23.3 billion pounds ($30.77 billion) in the second month of the new fiscal year, up 5.4 billion pounds on the same period of 2025.

It was the second-highest borrowing figure for the month of May on record, exceeded only in 2020, when spending surged and revenues fell in response to the Covid-19 pandemic. It was also 5.6 billion pounds higher than the figures projected by the Office for Budget Responsibility.

That overshoot in the public finances comes as Prime Minister Keir Starmer seems set to face a challenge to his leadership from Andy Burnham, the mayor of Manchester who was elected by a comfortable margin in voting Thursday to represent the district of Makerfield in northern England.

Burnham has in the past suggested that the government should not set policy to please bond investors, but on the campaign trail he declared his support for the existing fiscal rules, which aim to pay for day-to-day spending out of tax revenues by the end of this decade.

"The big picture is that the public finances are fragile," said Ruth Gregory, an economist at Capital Economics. "This will constrain whoever is prime minister."

The rise in borrowing was driven by a 4.1 billion pounds increase in interest payments on the government's debts. Compared to its peers, bonds paying an interest rate that is linked to inflation account for a larger share of the U.K. government debt.

That leaves the government more exposed to a pickup in prices as a result of the conflict in the Middle East.

At the same time, the increase in tax revenues has slowed over recent months.

The U.K. economy contracted in April after a strong start to the year, reflecting weaker household and business confidence as well as higher energy costs.

The Organization for Economic Cooperation and Development expects the U.K. economy to grow by just 0.9% this year, a sharp slowdown from the 1.4% expansion recorded in 2025 and below the 1.1% forecast by the OBR in March. Slower-than-expected growth would weaken tax revenues.

In the fiscal year that ended in early April, the government reduced the gap between spending and revenues to its narrowest since the outbreak of the Covid-19 pandemic, and plans to further cut its budget deficit over coming years.

Based on its growth forecast, the OBR expected the government to borrow 115.5 billion pounds in the fiscal year ending April 5, 2027, a drop from 129 billion pounds in the fiscal year that ended on April 5, 2026.

However, Pantheon Macroeconomics estimates borrowing would total more than 136 billion pounds if the overshoots recorded in April and May were to continue.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

June 19, 2026 04:06 ET (08:06 GMT)