The UK government faces mounting pressure ahead of its upcoming budget after new data revealed higher-than-expected inflation and public borrowing in September. The Consumer Prices Index (CPI) rose to 3.5 percent, up from 3.1 percent in August, surpassing analysts' forecasts of 3.4 percent. Finance minister John Healey attributed the increase to global conflicts, particularly the impact on energy prices from the Russia-Ukraine war. Healey emphasized that his budget, set for October 28, will balance fiscal discipline with support for businesses and families.
The Office for National Statistics (ONS) highlighted that transport costs, especially motor fuels, drove the inflation surge. Diesel prices hit their highest level since July 2022, shortly after Russia's invasion of Ukraine. ONS chief economist Grant Fitzner noted that both raw material and factory output costs continued to rise due to higher crude oil and petrol prices.
Separate data showed the government's net borrowing reached £24.5 billion in September, exceeding market expectations of £24 billion. The ONS attributed this to higher spending, including increased debt interest costs, which outpaced government income. Rising borrowing costs for governments worldwide, driven by higher inflation, are forcing central banks to raise benchmark rates, adding pressure on businesses and individuals with loans.
Analysts now predict the Bank of England will raise borrowing costs at its next policy meeting in November. The ONS also revealed that UK public debt exceeded £3 trillion for the first time, though debt as a proportion of GDP decreased slightly. Richard Carter of Quilter Cheviot noted the government's challenge in pursuing long-term spending while managing high borrowing costs and existing debt.