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UK May Deficit Hits £23.3bn Record Outside 2020
UK May budget deficit hit £23.3bn, the largest for the month outside 2020. Extra gilt supply pushes yields higher, creating two-sided risk for sterling ahead of the autumn budget and BOE meeting.
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Britain's government ran a £23.3bn budget deficit in May, the Office for National Statistics said Friday, up 30% from a year earlier and above all economists' forecasts in a Reuters poll. Excluding the pandemic year of 2020, it was the largest May shortfall since records began in 1993.
The bigger-than-expected gap forces the government to sell more gilts to cover the shortfall. Extra supply tends to push yields higher. Higher gilt yields can draw foreign demand for the extra income, which supports the pound. A separate outcome is also possible. Persistent deficits that fuel worries about fiscal sustainability can weigh on sterling over time. Several analysts at primary dealer banks said the immediate focus will be on the Debt Management Office's next issuance calendar and whether auction sizes increase.
The data arrives ahead of the autumn budget on Oct. 30, when the Treasury will set out updated fiscal plans alongside new Office for Budget Responsibility forecasts. The OBR will assess the government's headroom against its self-imposed fiscal rules. The May deficit erodes that cushion, analysts said. Net debt excluding public sector banks stood at 98.5% of GDP, near levels not seen since the early 1960s.