British inflation and government borrowing both rose more than expected last month, official data showed on Wednesday, adding pressure on finance minister John Healey a week before his first budget and raising the likelihood of a Bank of England interest rate hike, Reuters reported.

Source: Reuters

Consumer price inflation rose to 3.5% in the 12 months to September, up from 3.1% in August, the Office for National Statistics (ONS) said. Economists polled by Reuters had forecast 3.4%, while the Bank of England had predicted a smaller rise to 3.0% in forecasts published in July. The ONS said the increase was driven by higher petrol and diesel costs, as the surge in energy prices caused by the Iran war gathered steam, and it took inflation to its highest level since October 2025.

Separate ONS figures showed the government borrowed £24.52 billion in September, more than the £23.85 billion median forecast in a Reuters poll and up from £22.76 billion a year earlier, pushed up by spending on debt interest. Over the first six months of the 2026/27 fiscal year, the deficit stood at £97.8 billion — down £4.4 billion from a year earlier but £6 billion above the forecast made by the Office for Budget Responsibility before the Iran war began. Public sector debt was estimated to have exceeded £3 trillion ($4.01 trillion) for the first time, although as a share of the economy it was lower than a year earlier, at about 94% of GDP.

"Rising inflation and record levels of debt illustrate the double dilemma facing the chancellor – how to ease cost-of-living pressures for families while keeping a lid on government borrowing," Greg Thwaites, interim chief economist at the Resolution Foundation, said. Ruth Gregory, deputy chief economist at Capital Economics, said the higher-than-expected borrowing "reinforces our view that the chancellor will deliver a cautious budget on October 28 that has little net impact on the economy and leaves the toughest fiscal choices for next year."

Healey is expected to offer some further support for households hit hardest by the jump in energy prices, but his options are limited by the government's fiscal rules. Reuters reported he is expected to raise taxes on banks among other measures next week to stay on track to meet those rules. The September inflation rate is traditionally used by the government to set increases for welfare benefits, so the figure matters directly for millions of households — including the large Punjabi and Indian diaspora in Britain watching both living costs and benefit uprating.