UK inflation climbed to 3.5% in September while public sector borrowing jumped to £24.5 billion, pushing national debt past £3 trillion for the first time. The economic figures arrive just a week before Chancellor John Healey delivers his budget presentation as market pressure mounts.
British public finances face a severe double squeeze as inflation accelerated to 3.5% in the year to September. The Office for National Statistics reported that consumer prices jumped from 3.1% in August, hitting the highest rate recorded since October last year.
At the same time, government borrowing reached £24.5 billion for September. That figure outpaced Office for Budget Responsibility forecasts by £1.9 billion and exceeded the £24.1 billion prediction shared by economists.
Fuel Costs and Middle East Conflicts Drive Price Surges
Motor fuel prices emerged as the primary catalyst behind September’s inflation acceleration. Average petrol prices across the country rose by 8.2p to reach 169.5p per litre, marking the highest point recorded in around four years.
Diesel prices climbed even higher, surging by 10.7p to 192.5p per litre, which represents the highest level since July 2022. Overall motor fuel prices jumped by nearly 30% over a 12-month period.
Global oil supplies faced intense disruption following military actions in the Middle East and Ukraine. The effective closure of the Strait of Hormuz by Iran following US and Israeli attacks pinched crude oil shipments, while mutual infrastructure strikes by Russia and Ukraine constrained international refining capacity.
National Debt Crosses £3 Trillion Amid Climbing Interest Payments
As borrowing costs mounted, public sector net debt surpassed £3 trillion for the first time. The national debt burden increased by £91.7 billion compared with the same period a year earlier.
Government spending rose by 5.6% to reach £111.3 billion during September. Central government debt interest costs alone accounted for £10.9 billion of that total, representing a £1.6 billion increase against the previous year and the largest September interest bill on record.
Net spending on social benefits climbed by £1.6 billion to reach £30.6 billion for the month. Despite the mounting cash total, ONS chief economist Grant Fitzner noted that debt as a proportion of gross domestic product decreased by 0.7 percentage points down to 94%.
Borrowing in the first six months of the current financial year remained below the same period last year, thanks to higher receipts, although it was still above the official forecast. Preliminary figures suggest that although debt in cash terms continues to rise, as a proportion of GDP it has fallen over the year. On this latter basis it remains at levels last seen in the early 1960s.
Grant Fitzner, chief economist at the Office for National Statistics
Political Fallout and Market Pressures Ahead of the Budget
The convergence of higher borrowing and sticky inflation creates acute policy challenges for Chancellor John Healey as he prepares his fiscal statement for next week. Financial analysts point out that rising gilt yields have shrunk the Treasury’s fiscal headroom.
Greg Thwaites, interim chief economist at the Resolution Foundation, described the situation as a difficult balancing act for the government.
Rising inflation and record levels of debt illustrate the double dilemma facing the chancellor – how to ease cost of living pressures for families while keeping a lid on Government borrowing. Borrowing is already off track this year, debt has hit £3 trillion, and markets are closely scrutinising government’s ability to keep on top of the public finances. The chancellor must confront this double dilemma head on in his Budget next week rather than duck reality.
Greg Thwaites, interim chief economist at the Resolution Foundation
Other economic observers warned that the September inflation data solidifies expectations for further monetary tightening. Economists from the Confederation of British Industry noted that an interest rate increase by the Bank of England is firmly on the table for the November meeting to prevent price pressures from spreading further into wages and shop goods.
While Mr Healey ruled out raising capital gains tax, market speculation points toward possible tax adjustments targeting banks.