LONDON, June 19 (Reuters) - British government borrowing jumped much more sharply than expected in May as higher inflation pushed up the cost of servicing inflation-linked debt, official figures showed on Friday in unwelcome news for the public finances.
Britain's government ran a budget deficit of £23.3 billion pounds ($30.7 billion) in May, up 30% on a year earlier and above all economists' expectations in a Reuters poll which had pointed to a little-changed reading of £18.5 billion.
Britain historically
issued much more index-linked debt than other countries. This debt has interest payments and the amount to be paid back linked, with a three-month lag, to retail price inflation, which was 3.1% in May and higher earlier in the year.
In March, before the impact of the U.S.-Iran war was clear, the government's budget watchdog forecast Britain would run a £115.5 billion deficit in the 2026/27 financial year, equivalent to 3.6% of national income and down from 4.3% in 2025/26.
But Friday's data showed that for the first two months of the financial year, public sector net borrowing was 24% higher than in 2025 at £46.3 billion, compared with an OBR forecast of £38.6 billion.
"Several questions remain over whether the current plans will be sufficient to reduce public borrowing," said Matt Swannell, chief economic adviser to forecasters the ITEM Club.
Debt interest costs in May alone were 54% higher than a year earlier and the ONS said they were likely to rise further in next month's data.
Last week Britain offered investors the highest yield since at least 1998 when it sold £9 billion of 15-year debt.
The government is also struggling to finance extra defence spending within existing budget rules and previous promises to other departments, prompting defence minister John Healey to resign in protest last week.
Tax and other government revenues are up 4.1% so far this year, while the cost of benefits including pensions is 7.4% higher and spending on public services has risen 2.9%.
($1 = 0.7582 pounds)
(Reporting by David Milliken; editing by Sarah Young)
