My sense is that if your son really doesn't want to do it, it doesn't hurt him at all to just simply keep him with the K class and let him read at home with you this year. Five IS very young to handle the social situation if he's not up for it.
We had similar issues last year with my then-5 K'er. He was reading MagicTreeHouse at 3, and officially reading at mid-3rd grade level on Lexile in the first week of K. We considered accelerating (for all subjects), but instead kept him in K with his own book bins set at his Lexile score. When he finished books, I could take him to the library and he could take his Lexile quiz. It didn't matter for the school, but he loved seeing his reading level impove with the scores.
He also loves to read at home. Even without accelerating him in school, he went from 3rd grade reading in August, to reading the entire Harry Potter series on his own in the Spring, to testing at an 8.9 grade level in reading by May. Even in retrospect, the acceleration jump wouldn't have added any more for him.
If your son does want to try it, though, I don't think it hurts! My DS-now 6 has been mingling with older kids all along, and 2 years older isn't a huge gap. He feels more of a connection w/ the now-3rd graders than he does with the now-1st graders, so that could be a great thing. Mine is also still little and talks "younger" than everyone else, so now that he's in 4th/5th grade classes, there are some moments when I really feel for him. For ex., he doesn't always have that best buddy to partner up with, and he feels a little left out when they're running around w/ gross motor, but he takes it all in stride.
