The UK government borrowed £23.3bn in May – almost a third more than the same month last year and £5.6bn above the Office for Budget Responsibility's forecast – as debt interest payments surged to an all-time May high of £11.7bn. "The big picture is that the public finances are fragile," said Ruth Gregory, deputy chief UK economist at Capital Economics, warning that this would constrain whoever is Prime Minister.
The jump in borrowing costs was driven largely by higher inflation after the outbreak of the Iran conflict, which pushed up oil prices and is expected to drive inflation further. "Long-term borrowing costs have been creeping up," said Danni Hewson, head of financial analysis at AJ Bell, adding that these would be "monitored closely if the anticipated Labour leadership contest gets under way".
“UK borrowing hits £23.3bn, exceeding forecasts; Asda losses near £1bn amid price war.”
That contest moved closer as Greater Manchester mayor Andy Burnham was elected MP for Makerfield in a by-election, paving the way for a leadership challenge. Burnham has pledged to follow existing fiscal rules, including not borrowing to fund day-to-day spending, and has drafted in economic heavyweights to bolster his credentials. Chief Secretary to the Treasury Lucy Rigby defended the government's record, saying: "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." Shadow Chancellor Mel Stride countered: "Borrowing is out of control."
Meanwhile, the strain on household budgets is mirrored in the retail sector. Asda slumped deeper into the red last year, with losses growing to almost £1bn as it cut prices to fend off discount rival Aldi and faced one-off costs, according to its accounts. The supermarket's struggles add to the picture of an economy under pressure from inflation, higher borrowing costs and political uncertainty – with investors, Susannah Streeter of Wealth Club noted, having "priced in the likelihood of a Labour leadership challenge", partly because Burnham has positioned himself closer to the political centre.