Inflation and borrowing figures tighten John Healey’s choices before Budget
September inflation rose to 3.5% and government borrowing reached £24.5bn, adding to the pressures on Chancellor John Healey before his 28 October Budget.
John Healey faces higher inflation and borrowing ahead of his 28 October UK Budget after figures released on Wednesday, 21 October, showed consumer prices rising by 3.5% in September and government borrowing reaching £24.5bn that month. The figures add pressure on households while increasing the cost of servicing public debt.
Fuel prices lift September inflation
The September consumer prices index rate rose from 3.1% in August, according to Office for National Statistics figures reported by the Evening Standard. It was the highest rate since October last year, when inflation stood at 3.6%, and exceeded economists’ expectation of 3.4%.
Transport was the largest contributor to the increase, particularly motor fuels. Average petrol and diesel prices reached a four-year high in September, the ONS said, according to the Standard. BBC economics editor Faisal Islam reported that measures of underlying inflation also increased, while food-price inflation remained largely unaffected by the energy shock.
The September inflation figure will also determine increases in welfare payments next April. Under the Triple Lock, the state pension will rise by 3.9% then, the BBC reported. Higher prices can lift tax receipts in cash terms when tax thresholds are frozen, but they also raise the cost of public services and may add to pay demands.
Debt interest adds to borrowing pressure
The government paid £10.9bn in debt interest in September, the highest figure for that month since records began, according to the Guardian’s account of the ONS figures. Some government bonds are linked to the retail prices index, so inflation increases the payments due on them. The monthly deficit rose from £17bn in August and was £1.9bn above the Office for Budget Responsibility’s forecast.
Public-sector net borrowing for the financial year to date stood at £97.8bn. That was £4.4bn below the same period last year but £6bn above the OBR’s expectation, the Guardian reported. Income-related tax receipts rose by more than 7% from a year earlier in September, and corporation tax receipts by 9%; those gains did not offset the higher debt-interest bill.
The figures leave Healey balancing the cost-of-living pressure on households against the cost of government borrowing. He is due to present his Budget on 28 October. The Guardian reported that he is expected to accept less fiscal headroom than the £24bn built up by his predecessor, Rachel Reeves, at the spring forecast; that remains an expectation ahead of the Budget, not an announced decision.
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Sources and context
- Inflation and borrowing data illustrate chancellor's Budget challengeBBC News
- UK government borrowing rises to £24.5bn as John Healey prepares for budgetThe Guardian
- Inflation jumps to near-year high of 3.5% in pre-Budget blow to ChancellorEvening Standard
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