UK inflation rises to 3.5% as borrowing exceeds forecast ahead of Budget

UK inflation rose to 3.5% in the year to September and government borrowing came in above forecast, sharpening the fiscal challenge facing Chancellor John Healey ahead of the Budget on 28 October. [1] [2]

The Consumer Prices Index (CPI) rate increased from 3.1% in August, with transport — particularly motor fuels — making the biggest upward contribution, according to the Office for National Statistics. Petrol averaged 169.5p a litre in September and diesel 192.5p, their highest prices since August and July 2022 respectively. [2]

The ONS’s broader CPIH measure, which includes owner-occupiers’ housing costs and Council Tax, rose to 3.6% from 3.3%. Core CPI inflation, excluding energy, food, alcohol and tobacco, also edged up, from 2.6% to 2.8%. [2]

Public sector net borrowing was £24.5bn in September, £1.8bn more than a year earlier and £1.9bn above the Office for Budget Responsibility’s forecast. Borrowing for the financial year to September totalled £97.8bn: lower than in the same period last year, but £6bn above forecast. [1]

Debt interest payable by central government was £10.9bn in September, the highest September figure since monthly records began in 1997, not adjusted for inflation. The ONS said £4bn of that amount reflected the capital uplift on index-linked gilts, largely because retail price inflation rose between June and July. [1]

Public sector net debt was provisionally estimated at £3,005bn at the end of September, exceeding £3tn for the first time. At 94% of gross domestic product, however, the debt ratio was 0.7 percentage points lower than a year earlier. The ONS cautioned that the debt estimate could be revised as more data become available. [1]

September’s CPI rate is used to uprate some benefits, while higher inflation can also add to public-service costs. The BBC’s economics editor Faisal Islam said the figures illustrated the balance Healey faces between easing cost-of-living pressures and managing the public finances. [3]