UK Government Borrowing Soars to Second Highest May Figure on Record

Public sector borrowing in the UK reached £17.7 billion in May, marking a concerning increase from £17 billion in the previous year and settling as the second-highest May figure ever recorded. The rise surpassed City economists’ predictions of £17.1 billion, intensifying pressure on Chancellor Rachel Reeves to maintain control over spending limits.

The escalation in borrowing comes despite higher tax receipts, raising red flags about the government’s ability to reduce the annual deficit within established spending parameters. While October’s budget allocated over £100 billion for additional investment spending, Reeves remains steadfast in her position that day-to-day Whitehall budgets must adhere to strict limitations.

The current budget deficit, measuring monthly shortfalls in day-to-day spending, showed a marginally positive trend at £12.8 billion, falling below the Office for Budget Responsibility’s (OBR) forecast of £13 billion. This marks the second consecutive month of better-than-predicted performance in this metric.

Recent policy moves by Reeves include implementing additional business taxes and national insurance contribution increases from April. The chancellor’s March budget statement emphasised the necessity of welfare bill reductions to maintain a buffer of nearly £10 billion in the current budget. Labour backbenchers are expected to oppose welfare cuts exceeding £5 billion in the recently introduced parliamentary bill.

Economic forecasters, including the International Monetary Fund and Bank of England, have reduced their UK growth projections for the year. These downward revisions suggest potential decreases in tax receipts over time, possibly forcing the chancellor to implement further spending reductions or tax increases to address the shortfall.

The OBR’s March projections anticipated borrowing would decrease from £152 billion in 2024-25 to £117.7 billion in 2025-26. However, economists now suggest that maintaining the current £9.9 billion buffer might require additional measures worth £13-23 billion later this year, presenting significant challenges for the Treasury’s fiscal management.