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

UK inflation and government borrowing both hit their highest in a year on Wednesday, adding to the pressure on Chancellor John Healey ahead of his first Budget in a week.

The pace of UK price rises accelerated to 3.5% in the year to September, pushed up by sharp increases in petrol and diesel prices.

The inflation figures came as UK government borrowing jumped to nearly £25bn in September, which means borrowing for the financial year to date is running £6bn above official forecasts.

Healey has promised a Budget which will stick to Labour's commitment not to hike the three main taxes - income tax, National Insurance and VAT - while sticking to the party's fiscal rules.

Inflation, the rate at which prices are rising, jumped from 3.1% in the year to August to 3.5% in the year to September. It is the highest inflation has been since October 2025, according to the Office for National Statistics (ONS).

The cost of filling up a vehicle has soared in recent months as conflicts in the Middle East and Europe continue to squeeze global oil supplies.

The effective closure of the Strait of Hormuz by Iran after US and Israeli attacks has severely disrupted a major global supply line for crude oil, while oil refining capacity has been hampered globally by Russian and Ukrainian attacks on each other's infrastructure after Russia's invasion of Ukraine.

Petrol prices in September were the highest since August 2022, the ONS said, while diesel also rocketed.

The average price of petrol rose by 8.2p per litre to 169.5p per litre between August and September, while diesel rose to 192.5p per litre.

Motor fuel prices overall rose by 29.8% in the period covered by the figures.

ONS chief economist Grant Fitzner said September's "notable" increase meant inflation was at its highest rate in almost a year.

As well as fuel prices, the increase was driven by rising prices for airfares, computer games and live events, Fitzner said.

September's inflation figure is also important because it suggests how benefits will increase next April.

It means the state pension will most likely rise by 3.9%, in line with average wage rises from May to July, due to the triple lock.

The inflation figure for September also dictates how other benefits will rise in April. By law, benefits such as personal independence payment (PIP) and carer's allowance must rise in line with September's consumer price index (CPI) measure of inflation.

With a week to go until he delivers the Budget, Healey said: "We know that price rises from conflicts in the Middle East and Europe are hitting Britain and countries worldwide."

He said the International Monetary Fund last week had praised the UK government for its "fiscal discipline", and that the government has just given the go-ahead for getting more gas from the North Sea's Jackdaw field.

The Budget on 28 October will "keep up this momentum", he said, by sticking to the government's self-imposed fiscal rules, and by driving "growth in every postcode, while giving businesses and families some breathing space".

But the inflation figure came as the ONS said the government borrowed £24.5bn in September, £1.8bn higher than a year earlier, as higher inflation helped to push up debt interest costs.

The overshoot means, cumulatively, the government has borrowed £6bn more this year than the Office for Budget Responsibility (OBR), which scores government spending plans, had forecast.

Despite overall debt topping £3tn for the first time, debt as a proportion of the UK's economic output - the measure used by the government to judge whether it is in line with its fiscal rules - fell.

The Conservatives said higher inflation and borrowing showed Labour had "lost control of the economy".

Shadow Chancellor Andrew Griffith called for Healey to use his Budget to "tackle the deficit, and reduce the red tape and net zero costs that are driving up the cost of living for families".

He added that the Conservatives would cut taxes, the costs of benefits and "wasteful" spending to "make our country prosperous again".

Ruth Gregory, deputy chief UK economist at Capital Economics, said the borrowing figures "painted a dismal picture" ahead of Healey's Budget. She said the amount borrowed in September was higher than analyst expectations as well as spending watchdog the Office for Budget Responsibility (OBR)'s forecast.

"This reinforces our view that the Chancellor will deliver a cautious Budget on 28 October that has little net impact on the economy and leaves the toughest fiscal choices for next year," she said.