Inflation and government borrowing highest for a year ahead of next week's Budget

Inflation and government borrowing both reached their highest levels in a year in the UK, putting pressure on Chancellor John Healey as he prepares his first Budget next week. The speed of UK price increases quickened to 3.5% in the year to September, driven by sharp spikes in petrol and diesel prices. Government borrowing in September reached nearly £25bn, exceeding official forecasts by £6bn for the financial year to date.

Chancellor Healey has pledged a Budget that adheres to Labour's pledge not to raise the three main taxes - income tax, National Insurance, and VAT - while adhering to the party's fiscal rules. Inflation, which soared from 3.1% in August to 3.5% in September, is the highest since October 2025. Petrol prices hit their highest level since August 2022, with the average price rising by 8.2p per litre to 169.5p per litre.

Diesel prices also surged to 192.5p per litre. The ONS chief economist, Grant Fitzner, noted that September's notable increase pushed inflation to its highest rate in nearly a year. This inflation figure is crucial as it determines the increases in benefits such as the state pension and other social security payments starting in April.

Healey highlighted the International Monetary Fund's praise for the UK's fiscal discipline in the face of rising fuel prices due to conflicts in the Middle East and Europe. The Budget on October 28 aims to maintain this momentum, sticking to fiscal rules and promoting growth across the country while providing some relief to businesses and families.

However, the rising inflation and borrowing figures have drawn criticism from the opposition. Shadow Chancellor Andrew Griffith called for Healey to focus on tackling the deficit and reducing red tape in his upcoming Budget.