The budget deficit stood at £ 14 billion ($ 17.2 billion), £ 2 billion higher than economists had forecast. Overall government spending was higher than the Office for Budget Responsibility predicted in March, and receipts lower.
Higher interest rates and inflation boosted the money the Treasury spends to service its debt to £ 7.6 billion, the most for any May on record, from £ 4.5 billion a year earlier. The OBR is forecasting a surge of £ 19.7 billion in June.
“Rising inflation and increasing debt interest costs pose a challenge for the public finances, as they do for family budgets,” Chancellor of the Exchequer Sunak said in a statement. “That is why we are taking a balanced approach – using our fiscal firepower to provide targeted help with the cost of living, while remaining on track to get debt down.”
The overall deficit was down from £ 18 billion in the same month of 2021, when the economy was still emerging from a third coronavirus lockdown. That improvement reflects the ending of pandemic-era spending programs, a buoyant labor market and tax increases that took effect in April.
Inflation poses a direct threat to the public finances because a quarter of all government bonds is tied to the retail-prices index, which surged 11.7% in the year through May. Bank of England interest-rate increases to tame inflation add to the cost.