UK borrowing jumps in May as gilts rise and Burnham win rattles markets

UK public sector net borrowing rose to £23.3bn in May, the second-highest May on record, in a report that also coincided with a jump in gilt yields and early weakness in UK water company shares after Andy Burnham’s byelection win.

The figure was £5.6bn above the £17.7bn forecast cited in reporting and lifted borrowing in the first two months of the financial year to £46.3bn. Debt interest in May reached £11.7bn, which the reports described as a May record.

The data added to pressure on the Treasury and on Rachel Reeves’ fiscal room at a time when investors are already sensitive to any sign that borrowing is running ahead of expectations. It also fed a fast-moving market reaction to the political shock around Burnham.

Borrowing pressure

The Office for National Statistics said the rise in borrowing reflected higher debt interest and spending. ONS statistician Tom Davies said borrowing in the first two months of the financial year was nearly £9bn higher than in the same period in 2025.

That is the immediate fiscal backdrop for the latest market move. If borrowing remains elevated, the government has less room to absorb weaker growth, higher spending or further debt-service costs without reworking its plans.

The May figure also stands out in the context of recent public-finance history. It was the highest May borrowing since May 2020, when pandemic spending pushed the numbers sharply higher, and it was the second-highest May on record.

The reports did not point to a single cause. Instead, they described a combination of higher debt interest and spending pushing the number above the Office for Budget Responsibility’s forecast.

Market reaction

Markets responded quickly after the borrowing data and Burnham’s win. Reuters-disclosed market reporting said two-year gilt yields rose to a one-week high, while 10-year yields moved to around 4.809% to 4.813% and 30-year yields also increased.

That matters because higher gilt yields raise the government’s borrowing costs and can spill into other sterling-sensitive assets. Traders were treating the move as another sign that UK fiscal credibility and political stability are both in focus.

The timeline in the reporting showed the reaction building through the morning and into early afternoon trading. The borrowing release landed first, then the political result sharpened the move as investors reassessed the outlook.

The market response was not confined to gilts. Business reporting said the reaction spread into sectors most exposed to policy risk, particularly utilities.

Water shares fall

Guardian live reporting said United Utilities shares were down 1.3% and Severn Trent shares were down 1.2% in early trading after Burnham’s win. Reuters-linked market coverage also tied the selling to the rise in political uncertainty.

The move reflects how closely investors are watching the debate over public ownership and regulation. Burnham has publicly said Thames Water should be nationalised and that public ownership is an option.

The Guardian has also reported that Burnham allies want greater public control of water and energy. That makes the sector especially sensitive whenever his influence appears to increase.

Water companies are not the only names under scrutiny, but they are among the clearest immediate barometers of how investors read the politics. A stronger public-ownership agenda would be a direct challenge to current utility business models.

Political stakes

Burnham’s Makerfield byelection win has triggered speculation about a Labour leadership challenge and raised questions about future spending, taxes and fiscal discipline. That uncertainty is part of why the market reaction has been broader than a simple one-day move in gilts.

For Rachel Reeves, the risk is not only the May borrowing overshoot itself. It is the possibility that markets start to price in a less predictable policy path if leadership tensions in Labour intensify.

For Keir Starmer, the result adds a fresh political variable at a moment when the party’s economic credibility is being watched closely. For investors, the question is whether the result changes the odds of a different policy mix on taxation, spending and regulation.

The reports did not suggest any immediate policy shift, but they did show how quickly political signals can move markets when fiscal conditions are already tight.

What comes next

The next questions are whether gilt yields hold their move through the close and whether utility shares remain under pressure as London trading develops.

Market participants will also be watching for any fresh Treasury or ONS comment on the borrowing figures. A statement from Burnham or Labour figures on spending rules, fiscal discipline or water ownership could reinforce or soften the market reaction.

For now, the verified facts point to a convergence of three pressures at once: higher-than-expected borrowing, rising gilt yields and a political result that revived debate over Labour’s economic direction. That is why the latest move is being read not just as a single data surprise, but as a broader test of UK fiscal and political confidence.