LONDON — The UK public sector net borrowing reached £23.3 billion in May, marking the second-highest May borrowing figure on record. This amount exceeded the March spring statement forecast by £5.6 billion.

For the first two months of the fiscal year, UK borrowing totaled £46.3 billion. This two-month total surpassed the Office for Budget Responsibility forecasts by £7.7 billion. April public sector net borrowing was revised to £23 billion.

Tom Davies, a senior statistician at the Office for National Statistics, said: "Borrowing in the first two months of the financial year was nearly £9bn higher than in 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." ONS data attributed the borrowing increase to inflation raising public service costs and interest payments on inflation-linked bonds.

May debt interest payments reached £11.7 billion, an increase of £4.1 billion compared to the previous year. Total tax revenues for May were £85.5 billion, which represented a £3.4 billion increase from May of the previous year, with both value-added tax and income tax revenues showing increases. Financial market reactions to the Iran conflict contributed to higher debt interest costs.

UK government debt levels reached 95.1% of gross domestic product, which was 0.7 percentage points higher than the OBR's spring projections. The UK inflation rate registered at 2.8% last month. The Bank of England maintained its benchmark interest rate at 3.75% on Thursday. The bank's projections had anticipated spring inflation to fall close to 2% before fuel price increases delayed progress.

Martin Beck, chief economist at WPI Strategy, said: "The danger for Labour is that political uncertainty starts to carry a fiscal price. If investors begin to price in larger deficits or stickier inflation, gilt yields could move higher again, feeding directly into mortgage rates and debt interest costs." Lucy Rigby, chief secretary to the Treasury, 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."