Overview
- The Office for National Statistics reported on Friday that the government borrowed about £23.3bn in May and that debt interest payments reached a May record of £11.7bn, leaving public sector net debt at 95.1% of GDP and April–May borrowing at £46.3bn.
- The ONS said a £4.1bn rise in debt interest was driven by higher Retail Prices Index inflation feeding index-linked gilts and that increased spending on public services, investment and benefits outweighed stronger tax receipts.
- Financial markets moved after Andy Burnham’s Makerfield victory, with 10-year gilt yields rising and major banks warning there is a risk he would loosen fiscal rules if he became prime minister.
- The Treasury and economists pointed to the Middle East conflict and higher energy prices as key external shocks that have weakened growth, kept inflation elevated and mechanically increased the cost of servicing index-linked debt.
- The data sharpen a policy choice for ministers between maintaining Chancellor Rachel Reeves’s fiscal rules to reassure investors or loosening borrowing limits to fund investment and defence, a choice that could keep gilt yields and household borrowing costs higher.