Government borrowing rose to record highs in May (Image: Getty)
UK Government borrowing rose to £23.3 billion last month, as the impact of the Iran war saw debt interest costs surge to a record May high. According to data from the Office for National Statistics (ONS), borrowing rose by nearly a third to 30.4%, equating to around £5.4 billion.
It marked the second-highest May on record, beaten only during the pandemic and lays bare the high cost of global events on the UK’s finances. Experts had predicted a rise to around £18.8 billion with the Office for Budget Responsibility (OBR), predicting an increase to £17.7 billion. It comes amid political upheaval, as Prime Minister Sir Keir Starmer faces 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.
The impact of war in Iran continues to be felt (Image: Getty)
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.
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.
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.”