UK Borrowed £23.3bn in May as Iran War Fallout Hits Public Finances

Key Points

• The UK borrowed £23.3bn in May 2026, significantly higher than the expected £18.5bn by city economists
• Public sector net borrowing was the second highest for any May on record, behind only 2020 during the pandemic
• Borrowing was £5.6bn ahead of the forecast published alongside chancellor Rachel Reeves’s spring statement in March
• Debt interest costs reached £11.7bn in May – the highest ever recorded for any May – £4.1bn more than a year ago
• The Iran war in the Middle East pushed up energy costs, keeping inflation at 2.8% last month instead of falling to the 2% target
• Borrowing in the first two months of the financial year was £46.3bn – £8.9bn higher than a year ago
• Andy Burnham’s victory in the Makerfield byelection positions him to challenge Keir Starmer for Labour leadership
• If Burnham wins Labour leadership, he is expected to appoint a new chancellor who will face questions about fiscal rules and defence investment plan funding
• Ed Miliband and Shabana Mahmood have been mooted as potential candidates to replace Rachel Reeves as chancellor
• Government debt levels are running at 95.1% of GDP – 0.7 percentage points higher than the OBR projected in spring
• Tax revenues were up £3.4bn (4.1%) on a year ago at £85.5bn, with VAT and income tax take up
• Chief Secretary to the Treasury Lucy Rigby stated the war in the Middle East has clearly impacted economies around the world

London (Britain Today News) June 19, 2026 – The United Kingdom borrowed a higher-than-expected £23.3bn in May amid the economic fallout from the Iran war, underlining the fiscal pressures facing Andy Burnham if he takes over as the Labour leader, according to figures released by the Office for National Statistics (ONS) shortly after Burnham’s victory in the Makerfield byelection.

What Does the May 2026 Borrowing Figure of £23.3bn Mean for UK Public Finances?

In figures released shortly after Burnham’s victory in the Makerfield byelection, the Office for National Statistics (ONS) said public sector net borrowing – the difference between government spending and income – for the month was the second highest for any May on record. With debt interest costs higher than expected as financial markets responded to the Middle East conflict, borrowing was £5.6bn ahead of the forecast published alongside the chancellor Rachel Reeves’s spring statement in March.

City economists had expected much lower borrowing of £18.5bn, down from a revised £23bn in April. As reported by the journalist covering business economics for The Guardian, the ONS confirmed that borrowing rose by nearly a third (30.4%), or £5.4 billion, compared with a year earlier.

Tom Davies, a senior statistician at the ONS, said:

“Borrowing in the first two months of the financial year was nearly £9bn higher than in the same period of 2025. Spending on debt interest, public services, investment and benefits all increased in May 2026 compared with last May, more than outweighing higher tax receipts”.

How Did the Iran War in the Middle East Drive Up Debt Interest Costs?

Explaining the borrowing overshoot, the ONS pointed to higher-than-expected inflation, which had pushed up the cost of providing public services and increased interest payments on inflation-linked government bonds. The Bank of England – which kept interest rates on hold at 3.75% on Thursday – had expected inflation to fall close to its 2% target in the spring but progress was forestalled by rising fuel prices, as the Middle East war pushed up energy costs, and it remained at 2.8% last month.

Debt interest payments were £11.7bn in May – £4.1bn more than a year ago, marking the highest ever recorded in any May as rising Retail Prices Index (RPI) inflation impacted index-linked Government bonds. As reported by the journalist from The Independent, the ONS said interest payable on Government debt jumped £4.1 billion to £11.7 billion – the highest ever recorded in any May.

Reeves made clear her anger at the conflict, calling it a “folly”. The Independent reported that long-term Government borrowing costs have risen as the outlook for UK growth has weakened since the start of the Middle East conflict at the end of February and amid political uncertainty.

What Challenge Does Andy Burnham Face if He Becomes Labour Leader?

Burnham is expected to challenge Keir Starmer for the Labour party leadership after his byelection win. Andy Burnham has initiated a potential confrontation with Keir Starmer following a decisive victory in the Makerfield byelection, which positions him for a return to Westminster and a probable bid for the Labour leadership.

The magnitude of this win has sparked discussions among Burnham’s supporters about the possibility of him succeeding Starmer as prime minister in the near future, perhaps even within days, contingent on whether Starmer chooses to contest his position. If he wins, he is expected to appoint a new chancellor, who will immediately face questions about how they intend to meet Reeves’s fiscal rules and whether they will commit to fully funding the defence investment plan, which prompted the resignation of John Healey as defence secretary last week.

John Healey has stepped down from his position as defence secretary following intense disputes within the government regarding a protracted military expenditure plan. He criticized the proposed resolution for the defence investment plan (DIP), stating it “falls significantly short of what is necessary for the defence and the nation at this precarious time”. In a sharp resignation letter, Healey accused the prime minister of being “incapable” and the Treasury of being “reluctant” to “allocate the resources essential for national defense amidst escalating threats”.

The energy secretary, Ed Miliband, and the home secretary, Shabana Mahmood, have been mooted as potential candidates to replace Reeves. As reported by the journalist writing for The Independent on who would want to be Andy Burnham’s chancellor,

“In my view, the best candidates would be Pat McFadden, the work and pensions secretary, or Shabana Mahmood, the home secretary”.

Given that Burnham’s penchant for blue-sky thinking on public spending matters greatly who he would pick to look after the cost of borrowing, Ed Miliband should be off the list according to the same analysis.

Will Bond Markets Pressure Labour If Leadership Changes?

Whoever takes over could also face pressure from bond markets, nervous about what a change of leadership would mean for growth and taxation. Martin Beck, the chief economist at the consultancy WPI Strategy, said:

“The danger for Labour is that political uncertainty starts to carry a fiscal price. If investors begin to price in larger deficits or stickier inflation, gilt yields could move higher again, feeding directly into mortgage rates and debt interest costs”.

It comes amid political upheaval as Prime Minister Sir Keir Starmer is set to see a threat to his leadership from Andy Burnham, mayor of Manchester, who last night secured a victory in the Makerfield by-election, paving the way for him to mount a challenge. Mr Burnham has recently sought to reassure financial markets, and bond markets in particular, by stating his support for the Chancellor’s existing fiscal rules – which aim to pay for day-to-day spending out of tax revenues by the end of this decade.

The latest borrowing figures highlight the scale of the challenge in sticking to the rules. Shadow Chancellor Sir Mel Stride said:

“Burnham claims he is committed to the fiscal rules, yet when asked he could not even say what they are. The bond markets are watching nervously and we have already been paying a Burnham penalty on our borrowing costs”.

How Much Higher Is Borrowing Than Forecast in First Two Months of Fiscal Year?

Taking the first two months of the new fiscal year together, the ONS said borrowing was £46.3bn – £8.9bn higher than a year ago, and £7.7bn ahead of Office for Budget Responsibility forecasts. The ONS said borrowing in the financial year so far to May stood at £46.3 billion, which is £8.9 billion – nearly a quarter – more than the same period a year earlier and £7.7 billion more than the forecast by the OBR.

Tom Davies, ONS senior statistician, said:

“Borrowing in the first two months of the financial year was nearly £9 billion higher than the same period of 2025. Spending on debt interest, public services, investment and benefits all increased in May 2026, compared with last May, more than outweighing higher tax receipts”.

Borrowing rose despite the fact that tax revenues were up £3.4bn, or 4.1%, on a year ago, at £85.5bn, with the VAT and income tax take up. Public sector spending increased by £9.1 billion year-on-year to £118.0 billion, driven by rising costs of debt interest payments, public service delivery, investment, and benefits.

What Is the Current Government Debt Level Compared to GDP Forecasts?

Government debt levels are also running ahead of the OBR’s forecasts, at 95.1% of gross domestic product – 0.7 percentage points higher than projected in the spring forecast. In its spring forecast, the OBR estimated that this would be met by a healthy margin. But several questions remain over whether the current plans will be sufficient to reduce public borrowing.

The Resolution Foundation said the conflict would erase almost three-quarters of the Chancellor of the Exchequer’s headroom against her key fiscal rule under a ‘severe but plausible scenario’ in the Middle East conflict. Consequently, one of Rachel Reeves’s notable achievements, the £23 billion in fiscal ‘headroom’ she had accumulated in accordance with her financial guidelines, is now under threat.

As noted by Thomas Pugh from consultancy RSM in a recent report:

“The interplay of rising inflation, declining employment, and soaring gilt yields suggests that the Chancellor has likely already forfeited a third, or even half, of her fiscal leeway”.

What Does Chief Secretary to the Treasury Lucy Rigby Say About the Borrowing Figures?

Responding to the figures, Lucy Rigby, the chief secretary to the Treasury, said:

“Inflation has held steady and unemployment has fallen this week, but 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”.

Chief Secretary to the Treasury Lucy Rigby said:

“Inflation has held steady and unemployment has fallen this week, but 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 – protecting families and businesses from rising costs, while cutting borrowing at a faster rate than any other G7 economy”.

How Will the Iran War Continue to Impact UK Public Finances Despite Ceasefire?

Matt Swannell, chief economic adviser to the Item Club, cautioned the Iran war impact will take its toll on the public finances, despite an initial peace deal having been signed by the US and Iran. He said:

“With a ceasefire reached, energy prices have fallen back but are still higher than before the conflict. Weaker growth could weigh on tax revenues, while higher inflation and market interest rates will increase debt interest payments”.

He added:

“The Government’s primary fiscal rule commits it to ensuring that it’s only borrowing to invest by 2029-2030. In its spring forecast, the OBR estimated that this would be met by a healthy margin. But several questions remain over whether the current plans will be sufficient to reduce public borrowing”.

Long-term Government borrowing costs have risen as the outlook for UK growth has weakened since the start of the Middle East conflict at the end of February and amid political uncertainty. The UK borrowed a higher-than-expected £23.3bn in May amid the economic fallout from the Iran war, marking the second highest for any May on record.
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What Were City Economists’ Expectations for May Borrowing Before Figures Released?

City economists had expected much lower borrowing of £18.5bn, down from a revised £23bn in April. It was also more than the £18.8 billion expected by most economists and the £17.7 billion forecast by the UK’s independent fiscal watchdog, the Office for Budget Responsibility (OBR).

Public sector net borrowing (excluding public sector banks) rose to £23.3 billion in May 2026 from £17.9 billion last year, above market expectations of £18.5 billion. This was the second-highest borrowing for any May on record, behind that of 2020, indicating a tight fiscal situation.

The impact of Iran war pressures on UK public finances has been laid bare as official figures showed Government borrowing lifted to a higher-than-expected £23.3 billion last month after debt interest costs surged to a record May high. The Office for National Statistics (ONS) said borrowing was nearly a third (30.4%), or £5.4 billion, higher than a year earlier at £23.3 billion in May.

Why Is This May Borrowing Figure Second Highest On Record?

The ONS said borrowing was nearly a third (30.4%), or £5.4 billion, higher than a year earlier in May. The Office for National Statistics (ONS) said public sector net borrowing – the difference between government spending and income – for the month was the second highest for any May on record.

As reported by the journalist from The Independent, the ONS said borrowing rose by nearly a third (30.4%), or £5.4 billion, compared with a year earlier and marked the second highest May on record, beaten only during the pandemic era. The United Kingdom’s borrowing reached £23.3 billion, as per official statistics, marking an increase of nearly one-third compared to the same month last year.

This borrowing amount, which represents the gap between government expenditures and tax revenues, exceeded the predictions made by the Office for Budget Responsibility (OBR) by £5.6 billion. The Office for National Statistics reported that the interest on government debt soared to £11.7 billion, the highest amount recorded for any May.