UK government borrowing jumped to £24.5bn in September, the Office for National Statistics said, as debt interest payments hit a record high and added fresh pressure on Chancellor John Healey ahead of his first budget on 28 October. The government paid £10.9bn in debt interest that month, the highest September figure since records began and only the eighth time monthly interest payments have exceeded £10bn.
Rising inflation has substantially worsened the government's finances. The ONS said that because some government bonds are directly linked to the retail prices index measure of inflation, payments rise in line with it. As the Iran war has pushed up energy costs and boosted RPI in recent months, this mechanism alone added £4bn to debt interest costs in September, the statistics office said.
The £24.5bn deficit in September represented a significant deterioration from the previous month. It was £7.5bn higher than August's £17bn and exceeded the independent Office for Budget Responsibility's forecast by £1.9bn. In the financial year so far, public sector net borrowing stands at £97.8bn according to the ONS, which is £4.4bn lower than the same period last year but £6bn higher than the OBR expected.
Total government debt is estimated to have reached £3 trillion for the first time, though as a share of the size of the economy it has fallen to 94 per cent, down from 95 per cent a year ago, the ONS said. Healey has emphasised his commitment to the fiscal rules set by his predecessor Rachel Reeves, though he is widely expected to operate with less financial buffer against those rules than the £24bn headroom Reeves had at the time of her spring forecast.
For UK savers, borrowers and businesses, higher inflation that swells government debt interest payments reduces the financial flexibility available for tax changes or increased spending in the budget.