Britain's borrowing jumps as debt interest costs hit record high

Higher inflation is squeezing Britain’s public finances twice over: it is lifting the government’s debt interest bill and making spending restraint harder to sustain politically. That pressure showed up in May, when public sector net borrowing reached £23.3 billion, the second-highest figure for any May on record and £5.4 billion above the same month last year.

The Office for National Statistics said central government debt interest payable hit £11.7 billion in May, the highest ever recorded for that month. The jump in borrowing was also £5.6 billion above the Office for Budget Responsibility’s forecast of £17.7 billion, underlining how quickly inflation-linked liabilities can push the fiscal position off course.

Price data helps explain the strain. The annual Retail Price Index stood at 3.1% in May 2026, while consumer price inflation was 2.8% and CPIH was 3.0%. Because a large share of Britain’s debt is tied to inflation, higher prices feed directly into the state’s borrowing costs. The Office for National Statistics said UK public sector net debt stood at 95.1% of GDP at the end of May, a level last seen in the early 1960s.

The first two months of the 2026-27 financial year already showed the same pattern. The Office for Budget Responsibility said borrowing reached £46.3 billion, £8.9 billion more than in the same period a year earlier and £7.7 billion above its March projection profile. It said £2.4 billion of the overshoot came from higher debt interest spending, driven largely by inflation linked to the conflict in the Middle East.

That leaves Rachel Reeves with less room to maneuver as she weighs tax, spending and borrowing choices. The OBR’s March forecast had already penciled in a £115.5 billion deficit for 2026-27, equal to 3.6% of national income, down from 4.3% in 2025-26. But May’s numbers suggest the path to that improvement is narrowing, not widening.

Britain’s exposure is unusually large. UK index-linked gilts made up about 25.2% of the government’s debt portfolio at the end of 2025, or roughly £688.5 billion in nominal uplifted terms, according to official debt-management figures. The UK was also one of the first developed economies to issue inflation-linked bonds, launching its first index-linked gilt in 1981. That legacy now amplifies the fiscal damage whenever inflation stays sticky, leaving ministers with a bill they cannot easily control.