UK inflation and borrowing hit year-highs ahead of Budget

Chancellor John Healey under pressure as inflation reaches 3.5% and borrowing exceeds forecasts by £6bn

By LineZotpaper

Published21 October 2026

Read Time3 min

UK inflation rose to 3.5% in the year to September, its highest in a year, while government borrowing surged to £24.5bn in the same month, £1.8bn more than a year earlier. The figures, released a week before Chancellor John Healey delivers his first Budget on 28 October, intensify pressure on the government to balance its fiscal rules with mounting economic challenges.

Inflation accelerated to 3.5% in the year to September, up from 3.1% in August, according to the Office for National Statistics (ONS). The increase was driven primarily by soaring petrol and diesel prices, themselves pushed up by conflicts in the Middle East and Europe that have disrupted global oil supplies. Petrol prices reached their highest since August 2022, rising 8.2p to 169.5p per litre, while diesel climbed to 192.5p per litre. ONS chief economist Grant Fitzner described the increase as "notable" and also pointed to higher prices for airfares, computer games and live events.

The inflation data came alongside September's public borrowing figures, which showed the government borrowed £24.5bn, £1.8bn more than a year earlier. Cumulative borrowing for the financial year to date is now £6bn above the Office for Budget Responsibility's (OBR) forecasts, partly because higher inflation has pushed up debt interest costs.

Chancellor John Healey acknowledged the impact of global conflicts, saying: "We know that price rises from conflicts in the Middle East and Europe are hitting Britain and countries worldwide." He noted that the International Monetary Fund had recently praised the UK government's "fiscal discipline" and that the government had approved the Jackdaw gas field in the North Sea. Healey pledged that the Budget on 28 October would stick to the government's self-imposed fiscal rules and drive "growth in every postcode, while giving businesses and families some breathing space."

Shadow Chancellor Andrew Griffith accused Labour of having "lost control of the economy" and called for the Budget to "tackle the deficit, and reduce the red tape and net zero costs that are driving up the cost of living for families." He added that the Conservatives would cut taxes, the costs of benefits and "wasteful" spending "to make our country prosperous again."

Ruth Gregory, deputy chief UK economist at Capital Economics, said the borrowing figures "painted a dismal picture" and were higher than analyst expectations. She predicted that the Chancellor would deliver a cautious Budget with little net impact on the economy, leaving the toughest fiscal choices for next year.

The September inflation figure also determines benefit increases for the next year. Under the triple lock, the state pension is likely to rise by 3.9%, while other benefits such as personal independence payment (PIP) and carer's allowance must rise in line with the September CPI measure of inflation.

Analysis

Why This Matters

Higher inflation and borrowing constrain the Chancellor's ability to deliver tax cuts or spending increases while adhering to fiscal rules.
The Budget will set the direction for UK economic policy under the new Labour government, affecting households and businesses.
Benefit increases linked to inflation will impact millions of people's incomes next year.

Background

The UK government is preparing its first Budget under Labour, led by Chancellor John Healey. The party has committed not to raise the three main taxes, income tax, National Insurance and VAT, while maintaining self-imposed fiscal rules that require debt to fall as a proportion of GDP. The economic backdrop includes global supply chain disruptions from conflicts in the Middle East and Europe, which have driven up fuel prices.

Key Perspectives

Chancellor John Healey: Emphasises the global nature of price pressures and the government's fiscal discipline. He aims to balance growth with financial stability without breaking tax pledges. Shadow Chancellor Andrew Griffith: Claims the government has lost economic control and argues for lower taxes and reduced regulation to stimulate growth and lower living costs. Economists (Ruth Gregory, Capital Economics): Characterise the borrowing overshoot as a serious constraint, forecasting a cautious Budget that postpones difficult decisions.

What to Watch

The Budget announcement on 28 October, specifically any changes to fiscal rules or new spending measures.
Further inflation data for October, which may indicate whether price rises are stabilising or accelerating.
The government's progress against the OBR's borrowing forecasts, particularly if debt costs continue to rise.

Sources

Inflation and government borrowing highest for a year ahead of next week's Budget · BBC Northern Ireland

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11 claims in this story checked against 1 source: 8 supported.

Show each claim

SupportedUK inflation and government borrowing both reached their highest levels in a year.BBC Northern Ireland: “UK inflation and government borrowing both hit their highest in a year on Wednesday”
Partly supportedInflation reached 3.5%, and borrowing exceeded forecasts by £6bn.BBC Northern Ireland: “borrowing for the financial year to date is running £6bn above official forecasts.”
SupportedThe government borrowed £24.5bn in September, £1.8bn more than a year earlier.BBC Northern Ireland: “the government borrowed £24.5bn in September, £1.8bn higher than a year earlier”
SupportedHigher inflation helped push up debt interest costs.BBC Northern Ireland: “as higher inflation helped to push up debt interest costs.”
SupportedFuel price increases were driven by conflicts that disrupted global oil supplies.BBC Northern Ireland: “The cost of filling up a vehicle has soared in recent months as conflicts in the Middle East and Europe continue to squeeze global oil supplies.”
SupportedGrant Fitzner described September’s inflation increase as “notable”.BBC Northern Ireland: “ONS chief economist Grant Fitzner said September's “notable” increase meant inflation was at its highest rate in almost a year.”
SupportedJohn Healey said: “We know that price rises from conflicts in the Middle East and Europe are hitting Britain and countries worldwide.”BBC Northern Ireland: “Healey said: “We know that price rises from conflicts in the Middle East and Europe are hitting Britain and countries worldwide.””
Partly supportedAndrew Griffith said Labour had “lost control of the economy”.BBC Northern Ireland: “The Conservatives said higher inflation and borrowing showed Labour had “lost control of the economy”.”
SupportedRuth Gregory said the borrowing figures “painted a dismal picture”.BBC Northern Ireland: “Ruth Gregory, deputy chief UK economist at Capital Economics, said the borrowing figures “painted a dismal picture” ahead of Healey's Budget.”
SupportedGregory expected a cautious Budget with little net impact and the toughest fiscal choices left until next year.BBC Northern Ireland: ““This reinforces our view that the Chancellor will deliver a cautious Budget on 28 October that has little net impact on the economy and leaves the toughest fiscal choices for next year,” she said.”
Partly supportedThe September inflation figure determines benefit increases, and the state pension is likely to rise by 3.9% under the triple lock.BBC Northern Ireland: “It means the state pension will most likely rise by 3.9%, in line with average wage rises from May to July, due to the triple lock. The inflation figure for September also dictates how other benefits will rise in April.”

Correction

21 October 2026An earlier version of this story said September borrowing was £1.8bn above official forecasts. It was £1.8bn higher than a year earlier. Borrowing for the financial year to date was £6bn above official forecasts.