Public sector borrowing in the UK rose to £17.7 billion in May, up from £17 billion the previous year, marking the second-highest figure for the month on record.
The increase has intensified scrutiny on Chancellor Rachel Reeves as she faces growing fiscal challenges.
City economists had forecast borrowing at £17.1 billion, but the actual figure surpassed expectations. The rise in borrowing occurred despite stronger tax receipts, suggesting government efforts to manage public finances are facing headwinds.
The latest figures have raised concerns over the government’s ability to meet its strict fiscal rules and reduce the annual deficit. While the autumn budget allocated over £100 billion for capital investment, day-to-day departmental budgets remain tightly constrained under Reeves’s fiscal strategy.
Nonetheless, the current budget deficit—the gap between daily spending and revenue—came in slightly below forecasts. The Office for Budget Responsibility (OBR) had projected a £13 billion shortfall for May, but the final figure was £12.8 billion. This marked the second month in a row the deficit performed better than expected.
April’s rise in business taxes, including higher national insurance contributions, is expected to boost revenues. However, Reeves remains under pressure to keep the current budget’s near-£10 billion buffer intact, while also addressing rising welfare costs.
Labour backbenchers are reportedly preparing to challenge proposed welfare cuts exceeding £5 billion, which were included in a bill introduced this week. The opposition could complicate the chancellor’s fiscal plans.
At the same time, economic outlooks from key institutions, including the International Monetary Fund and the Bank of England, have downgraded UK growth forecasts. Slower growth may reduce future tax receipts, forcing the Treasury to either tighten spending or raise further revenue through taxation.
In March, the OBR predicted that borrowing would fall from £152 billion in 2024–25 to £117.7 billion in the following financial year. However, analysts now warn that this path may be at risk.
Economists have noted that lower growth expectations, higher borrowing costs, and recent policy reversals—such as on winter fuel allowance reforms—may force the chancellor to find an additional £13 billion to £23 billion later this year in order to maintain fiscal headroom.
The outlook for the autumn budget remains uncertain. Experts suggest Reeves could be compelled to announce further tax rises if economic conditions do not improve. Estimates suggest up to £20 billion in additional taxes may be required to close the fiscal gap if OBR growth projections are revised downward.
While interest rates are expected to be around 4 percent by the time of the budget, providing the Bank of England room to cut rates, fiscal tightening may still weigh on public services and household finances.
The government now faces the challenge of balancing economic recovery with fiscal responsibility as it prepares for the autumn budget.
