The UK borrowed £23.3bn in May, up almost a third on the same month last year, official figures show – a sum £5.6bn higher than forecast by the Office for Budget Responsibility (OBR). “The big picture is that the public finances are fragile,” said Ruth Gregory, deputy chief UK economist at Capital Economics, warning this would constrain whoever is Prime Minister.
The surge came as spending on debt interest, public services, investment and benefits all rose compared with last May, according to ONS statistician Tom Davies, outweighing higher tax receipts. Interest payable on government debt jumped to £11.7bn – the highest ever recorded in any May, the Office for National Statistics said. Danni Hewson, head of financial analysis at AJ Bell, attributed much of the jump in borrowing costs to higher inflation, which spiked after the Iran conflict broke out and is expected to rise further due to knock-on effects of higher oil prices.
“UK borrowed £23.3bn in May, up a third, while Asda losses neared £1bn.”
Greater Manchester mayor Andy Burnham was elected MP for Makerfield in a by-election, paving the way for a leadership challenge. Hewson noted that long-term borrowing costs have been creeping up and will be monitored closely if the anticipated Labour leadership contest gets under way. Susannah Streeter, chief investment strategist at Wealth Club, said investors seem to have priced in the likelihood of a Labour challenge, partly because Burnham has pledged to follow existing fiscal rules, including not borrowing for day-to-day spending. “His pledge to bring down huge welfare costs, partly to fund higher defence spending, is a signal that he is positioning himself closer to the political centre,” she said.
On Thursday, the Bank of England opted to hold interest rates, balancing a sluggish jobs market and expectations of further inflation. Chief Secretary to the Treasury Lucy Rigby said the war in the Middle East had impacted economies worldwide, but insisted the government had the right plan to protect families and cut borrowing faster than any other G7 economy. Shadow Chancellor Mel Stride countered: “Borrowing is out of control.”
In a separate blow to the economy, Asda slumped deeper into the red last year, with losses growing to almost £1bn as it fended off Aldi, according to accounts showing hits from price cuts to lure back shoppers and one-off costs.