The UK government borrowed £23.2 billion in May, blowing past the £19 billion economists had pencilled in. Central government spending on goods and services climbed to £39.6 billion — up £2.2 billion year-on-year — as inflation drove up the cost of running public services. Social benefit payments also rose by £1.2 billion to £28.4 billion, pushed higher by inflation-linked benefit uplifts and earnings-indexed State Pension increases.
A deficit this far above forecast tightens the fiscal headroom the UK Chancellor has ahead of the next budget, raising the probability of spending cuts or tax rises that would weigh on UK domestic growth. Gilt yields may come under upward pressure as the market prices in higher future issuance, which drags on UK rate-sensitive assets including housebuilders, banks, and sterling. UK equity indices and sterling-denominated bonds are the most directly exposed.
Jun 25: UK Chancellor's Mansion House speech — fiscal headroom commentary expected. Jul 23: ONS June public finances data. Aug 6: Bank of England rate decision.
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