Inflation and government borrowing have both climbed to their highest levels in a year, tightening the vice on the Chancellor less than a week before he delivers his first Budget to the Commons.
The Office for National Statistics said the Consumer Prices Index rose by 3.5 per cent in the 12 months to September, up from 3.1 per cent in August and above the 3.4 per cent economists had expected. It is the third successive monthly increase and the highest reading since October 2025, driven overwhelmingly by the surge in petrol and diesel prices that followed the closure of the Strait of Hormuz. Restaurants and hotels made the largest offsetting contribution.
Within the detail there was further discomfort for Threadneedle Street. Core inflation, which strips out energy, food, alcohol and tobacco, rose to 2.8 per cent from 2.6 per cent, and services inflation accelerated to 3.7 per cent, complicating the Bank of England's thinking ahead of its rate decision on 5 November.
Borrowing overshoots by 6 billion pounds
Ninety minutes after the inflation release came the public finance figures, and they were no kinder. Public sector net borrowing was 24.5 billion pounds in September, some 1.8 billion pounds more than a year earlier and 1.9 billion above the forecast of the Office for Budget Responsibility. It was the second highest September on record, behind only 2020.
Borrowing across the first half of the financial year now stands at 97.8 billion pounds. That is 4.4 billion less than at the same point last year, but 6 billion pounds above the OBR's forecast, an overshoot driven in large part by debt interest. Central government debt interest payable was 10.9 billion pounds in September alone, the highest for any September on record.
The figures also confirmed a milestone the Treasury had hoped to avoid on the eve of the Budget: the national debt has provisionally passed 3 trillion pounds for the first time. As a share of the economy, the measure the Government's fiscal rules actually judge, debt was lower than a year earlier.
The Economy in Numbers
- CPI inflation rose to 3.5 per cent in the year to September, up from 3.1 per cent, the highest since October 2025.
- Motor fuels made the largest upward contribution after the Hormuz closure sent pump prices soaring.
- Public sector net borrowing was 24.5 billion pounds in September, 1.9 billion above the OBR forecast.
- Borrowing in the financial year to date is 97.8 billion pounds, 6 billion pounds above forecast.
- Debt interest cost 10.9 billion pounds in September, a record for the month, and the national debt has passed 3 trillion pounds for the first time.
- The Budget is on Wednesday 28 October; the Bank of England's next rate decision is on 5 November.
"Breathing space" is the promise
Mr Healey said the Budget on 28 October would "keep up this momentum" by sticking to the Government's self-imposed fiscal rules while driving "growth in every postcode, and giving businesses and families some breathing space".
That was the warning from Nabil Taleb, an economist at PwC, who noted that the Institute for Fiscal Studies believes maintaining departments' spending power while meeting higher defence commitments is likely to require funding beyond the expected headroom. "The key question is not simply how much headroom remains," he said, "but how resilient that buffer is."
The Chancellor has already ruled out rises to income tax, employee National Insurance, VAT and, as of this week, capital gains tax. What remains, as the i paper first reported, is a rise in the tax paid by Britain's banks, now understood to be locked in for Budget day, alongside a compliance crackdown on online marketplaces, business rates reform and decisions on fuel duty and energy support.
What it means for households
For families, the practical consequence is that the cost of filling a car is feeding through to everything else, and the prospect of rate cuts before Christmas has faded. For the Chancellor, the arithmetic is simpler and harsher: with six days to go, the room for giveaways has all but vanished.