UK borrows more than expected as impact of Iran war takes toll

The UK borrowed a higher-than-expected £23.3bn in May amid the economic fallout of the Iran war, underlining the fiscal challenges facing Andy Burnham if he takes over as Labour leader.

In figures released shortly after Burnham’s victory in the Makerfield byelection, Office for National Statistics (ONS) said public sector net borrowing for the month was the second highest for any May on record.

With interest costs higher than expected as financial markets responded to the Middle East conflict, borrowing was £5.6bn ahead of the Office for Budget Responsibility (OBR) forecast made as recently as March.

City economists had expected much lower borrowing of £18.5bn, down from £24.3bn in April.

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.”

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 OBR forecasts.

Burnham is expected to challenge Keir Starmer for the Labour party leadership after the byelection win. His victory also puts pressure on the chancellor, Rachel Reeves, a close ally of Starmer.