The UK government’s borrowing surged sharply in May, reaching £23.3 billion—significantly above the Office for Budget Responsibility’s (OBR) forecast of £17.7 billion and marking the second consecutive month of overshooting targets. This increase has resulted in total borrowing of £46.3 billion in the first two months of the new financial year, £8.9 billion higher than the same period last year and £7.7 billion above the OBR’s expectations.

The rise in borrowing puts added pressure on the country’s public finances, with debt servicing costs climbing in response to inflationary pressures. Interest payments on government debt in May reached £11.7 billion, the highest amount recorded for that month, largely driven by higher-than-anticipated inflation measures. Approximately 25% of the UK’s national debt is index-linked to the Retail Prices Index (RPI), which recently rose by 3.1% compared to 2.8% for the Consumer Price Index (CPI). The inflation spike, exacerbated by geopolitical developments such as the war in the Middle East, has contributed to these rising costs.

The greater-than-forecast borrowing has fueled concerns about the sustainability of public finances and the cost of servicing debt. The UK currently pays more to borrow than any other major economy; recently, yields on 10-year government bonds have exceeded those of the United States by up to half a percentage point—a phenomenon sometimes referred to as the “moron premium” by market observers, who suggest this disparity could widen further should Andy Burnham assume the office of Prime Minister.

Burnham, who has previously expressed a desire to move beyond what he termed being “in hock to the bond markets,” has since committed to adhering to the OBR’s fiscal rules. However, data from April and May suggest the government is already on course to breach these guidelines. Critics also argue that the existing fiscal rules are insufficiently stringent to ensure long-term financial stability.

The sharp increase in borrowing is primarily attributed to higher government spending, which exceeded budgets by approximately £4 billion during April and May. Elevated expenditure has stemmed largely from increased social benefits and, importantly, from rising interest payments on debt. Tax revenues, by comparison, have remained broadly in line with forecasts, tempering the impact on overall finances.

The OBR’s fiscal projections rely heavily on assumptions that government departments will implement substantial spending cuts in the latter years of its forecast period, particularly ahead of forthcoming elections. While these assumptions underpin current official forecasts, market participants remain skeptical about their feasibility given the scale of reductions required.

Should Andy Burnham become Prime Minister in the coming months with a new Chancellor, they are likely to face significant fiscal challenges, including managing rising borrowing costs and restoring confidence in public finances. Despite having access to an advisory team that includes prominent economists such as Jim O’Neill, Andy Haldane, and Richard Hughes, the incoming leadership will confront a complex financial landscape shaped by elevated debt levels, inflation pressures, and tight fiscal constraints.