Business
UK Budget Deficit Surges Past Forecasts as Debt Costs Climb
The UK budget deficit widened to £23.3 billion in May 2026, marking the highest May borrowing level since 2020. Rising debt interest payments, public spending and welfare costs pushed borrowing above forecasts, while public debt remained near historic highs at 95.1% of GDP.
The UK budget deficit unexpectedly shot up by billions in May, with the government borrowing £23.3B in the month, higher than economists' expectations and the highest level recorded for any May since 2020. Borrowing was £5.4B higher in May than it was a year ago according to the Office for National Statistics (ONS), as spending outpaced revenue in the form of taxes and other income.
This means the UK has borrowed £46.3B in the first two months of the 2026-2027 fiscal year, £7.7B higher than the government's official forecasts and this brings yet more questions around public finance pressure to the surface.
Higher Interest Bill puts pressure on UK's Budget
The primary driver behind a widening of the UK budget deficit has been the cost of paying the interest on government debt. This increased to a record high for any May of £11.7B in the month of May. The UK has many inflation linked bonds, and as such when inflation continues to increase so does the cost of borrowing money for the government.
Government revenues in May totalled £85.5B while spending ran to £95.7B. Tax revenues have risen from May last year but have failed to keep pace with increased spending in government programmes. Debt burden of UK still high Public debt continues to be a concern for the UK as it stands at 95.1% of GDP, still in line with levels seen in more than 60 years.
In the financial year ended March 2026 the UK had borrowed £132B, a deficit representing 4.3% of GDP. Borrowing in April was also higher than anticipated, at £24.3B. This is significant to both investors in Australia as well as the United States because if and when the UK government issues additional debt in government bonds, and due to changes to both general policy as well as debt issuance strategies of the UK government.
The recent deficit figures also highlight further strain from debt servicing costs even while it tries to keep its head above water.
Source: Reuters
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