Rising interest payments on UK government debt limited an expected fall in public sector borrowing last month.
Public sector net borrowing was £14bn in May, down £4bn from the same month last year, according to data published on Thursday by the Office for National Statistics. But May’s borrowing was higher than the £12bn forecast by economists polled by Reuters and well above the £10.3bn expected by the Office for Budget Responsibility.
Interest payments rose to £7.6bn in May, well above the figure for last year and higher than the OBR forecast of £5.1bn following a rapid rise in retail price inflation, to which many debt payments are linked. Index-linked gilts make up 25 per cent of UK government debt.
The rising interest payments were partly offset by the end of most Covid-19 government support schemes and higher tax revenues as a result of the strong labour market and reopening of the economy.
Chancellor Rishi Sunak said: “Rising inflation and increasing debt interest costs pose a challenge for the public finances, as they do for family budgets.”
He added that “being responsible with the public finances now will mean future generations aren’t burdened with even higher debt repayments, and we can secure our economy for the long term”.