UK inflation reached 3.5% in the year to September, the highest rate in nearly a year, driven primarily by surging petrol and diesel prices following Middle East and European conflicts that have disrupted global oil supplies. The Office for National Statistics reported that petrol prices in September were the highest since August 2022, with average petrol rising 8.2p per litre to 169.5p and diesel climbing to 192.5p per litre.
The inflation spike comes as UK government borrowing jumped to £24.5bn in September, £1.8bn higher than the same month last year. This means borrowing for the financial year to date has exceeded official forecasts by £6bn, according to the Office for Budget Responsibility. Higher inflation pushed up debt interest costs, contributing to the overshoot.
The dual pressures arrive one week before Chancellor John Healey delivers his first Budget on 28 October. Healey has committed to keeping the three main taxes unchanged: income tax, National Insurance and VAT. He also pledged to stick to Labour's fiscal rules.
Healey acknowledged the external pressures in a statement, noting that "price rises from conflicts in the Middle East and Europe are hitting Britain and countries worldwide." He pointed to the International Monetary Fund's recent praise of the UK government's "fiscal discipline" and announced approval for additional gas extraction from the North Sea's Jackdaw field.
The September inflation figure also has direct consequences for benefits and pensions. The state pension will most likely rise by 3.9% next April under the triple lock mechanism, while other benefits including personal independence payment and carer's allowance must rise in line with the September CPI figure by law.
Ruth Gregory, deputy chief UK economist at Capital Economics, said the borrowing figures "painted a dismal picture" and predicted the Budget would be cautious with minimal economic impact, leaving difficult fiscal choices for next year.
The Conservative opposition challenged the government's economic management. Shadow Chancellor Andrew Griffith called for Healey to tackle the deficit and reduce "red tape and net zero costs" that he said drive up living costs for families.
Despite total UK debt topping £3tn for the first time, debt as a proportion of economic output fell, the measure the government uses to assess compliance with its fiscal rules.