Rising unemployment helped boost the cost of state benefits last month, accounting for nearly three-quarters of a surge in Government spend-ing since May last year and driving the public finances deeper into the red than in any previous May.
Social benefits cost £11.2 billion last month, £912 billion more than in May last year, a nine per cent increase, while current Government spending as a whole was only 3.1 per cent higher at £42.2 billion, National Statistics reported.
The Government's current budget, which Chancellor Gordon Brown aims to keep in balance over the economic cycle, went £8.7 billion into the red last month, £1.1 billion more than in May last year.
Over the first two months of the 2006/07 tax year the shortfall was £7.2 billion, a £1.2 billion increase - already exceeding a £7 billion deficit for the entire year forecast by the Chancellor in his March Budget.
Including public investments, public sector net borrowing hit a new May record of o ver £10 billion, some £600 million higher than in May last year.
That carried the Govern-ment's cumulative borrowing for the first two months of the tax year to £10.3 billion, £1.7 billion more than at the same stage last year.
Economists said this did not bode well for Mr Brown's full-year forecast of net borrowing of £36 billion.
"While we don't believe the Chancellor's fiscal rules are in jeopardy, it does point very clearly to the need for medium-term public expenditure restraint," said Philip Shaw, chief economist at Investec.
NS said last month's outcome would have been even worse but for a change in the timing of grant payments to local authorities. Treasury officials said local councils have been running much smaller surpluses than usual. This had pushed up Govern-ment borrowing, but would be smoothed out over the year.
"The public finances remain strong and we are meeting our strict fiscal rules," a Treasury spokesman said.
Private borrowing was booming, too, last month. The Council, of Mortgage Lenders, speaking for both banks and building societies, said they lent £28.7 billion to home-buyers and in re-mortgages in May - 18 per cent more than in April and 30 per cent more than in May last year.
"Lending has hit record levels in six of the last eight months, supported by the strength of the London market, interest in higher-priced properties and strong consumer confidence," said the CML's director general, Michael Coogan. He expects demand for mortgages to moderate later in the year, but demand to remain robust on the whole.
Numbers from the British Bankers' Associated showed an increase in the banks' mortgage lending last month of £5.7 billion - after repayments - the biggest total for May since 2004.
David Dooks, the BBA's direct of statistics, said: "May's rise in net mortgage lending, the largest monthly increase since the rise of £6 billion in April two years ago, shows the mortgage market to be very much alive at a time when house price growth is strengthening."
The trend looks set to continue, to judge from the value of new mortgages approved - but not yet paid out - by building societies during the month. These totalled £5.5 billion, against £3.8 billion last year.
The Building Societies Association said its members paid mortgages totalling £4.6 billion last month.