UK Inflation Hits 3.5 Percent and Debt Passes 3 Trillion Pounds a Week Before the Budget

Britain got two hard numbers on Wednesday morning. Inflation rose faster than expected in September, and the government borrowed more than expected in the same month, taking public debt past 3 trillion pounds for the first time. Both sets of figures came from the Office for National Statistics, and both land one week before Chancellor John Healey delivers his first Budget on Oct 28, 2026.

Fuel drove the inflation jump

Consumer price inflation rose to 3.5 percent in the 12 months to Sep 2026, up from 3.1 percent in Aug 2026. The Office for National Statistics said it was the highest rate since Oct 2025, when inflation stood at 3.6 percent. A Reuters poll of economists had pointed to 3.4 percent, and the Bank of England had predicted a smaller rise to 3.0 percent in forecasts published in July.

Fuel did most of the work. Motor fuel prices rose 30 percent in the year to September, up from a 23 percent annual rise in August. Average petrol prices rose 8.2p in the month to 169.5p per litre, the highest level in about four years, and diesel rose 10.7p to 192.5p per litre, the highest since July 2022. The statistics office linked the fuel surge to the Iran war and the disruption it has caused in global energy markets.

Grant Fitzner, chief economist at the Office for National Statistics, said inflation had climbed notably in September to its highest annual rate in almost a year, with fuel prices again the main driver and diesel at its highest cost since July 2022. Underlying pressure also picked up. Core inflation, which strips out food, energy, alcohol and tobacco, rose to 2.8 percent from 2.6 percent, and services inflation rose to 3.7 percent from 3.4 percent.

Borrowing beat the forecast again

Government borrowing reached 24.5 billion pounds in Sep 2026, 1.8 billion pounds more than in September 2025 and the second highest September figure on record, behind only 2020. A Reuters poll had expected 23.85 billion pounds, and the Office for Budget Responsibility had forecast 22.6 billion pounds. Debt interest was a big part of the gap. Central government debt interest payable hit 10.9 billion pounds in September, up 1.6 billion pounds on a year earlier, 2.0 billion pounds above forecast, and the highest September figure since monthly records began in 1997.

Across the first six months of the financial year, borrowing stood at 97.8 billion pounds. That was 4.4 billion pounds less than the same period a year earlier, but 6.0 billion pounds above the forecast the Office for Budget Responsibility made before the Iran war.

Public sector net debt was provisionally put at 3,005.0 billion pounds at the end of September, up 91.7 billion pounds in a year and past 3 trillion pounds for the first time. As a share of the economy, debt was 94.0 percent of gross domestic product, down 0.7 percentage points on a year earlier but still at levels the statistics office said were last seen in the early 1960s.

A tight week for the Chancellor

The figures leave Healey little room next week. Analysts cited by Reuters expect him to raise taxes on banks among other measures on Oct 28, 2026 to stay on track with his fiscal rules, and his margin for error has narrowed as borrowing costs on government debt have risen around the world since the conflict in the Gulf began. Greg Thwaites of the Resolution Foundation called it a double dilemma for the Chancellor: easing cost of living pressure on families while keeping a lid on government borrowing.