UK inflation accelerated to 3.5% in September, the highest level since October 2025, driven by surging fuel prices and other cost pressures. The Office for National Statistics (ONS) reported that petrol and diesel prices reached their highest levels since 2022, with the average petrol price rising 8.2p per litre. These increases are attributed to ongoing conflicts in the Middle East and Europe, which have disrupted global oil supplies and refined capacity. Inflationary pressures are also fueled by rising costs for airfares, computer games, and live events, according to ONS chief economist Grant Fitzner.
The government’s borrowing reached £25bn in September, £6bn above forecasts for the financial year to date. Higher inflation has increased debt interest costs, pushing borrowing figures beyond expectations. Despite overall debt surpassing £3tn for the first time, the debt-to-GDP ratio has decreased, indicating fiscal discipline. Chancellor John Healey faces mounting pressure as he prepares for his first Budget, promising to adhere to Labour’s fiscal rules and avoid raising the three main taxes.
The September inflation figure will determine how state benefits, including the state pension, increase in April. With the triple lock mechanism, the pension is expected to rise by 3.9%, in line with average wage growth. The figures also set the benchmark for other benefits like personal independence payment and carer’s allowance. Healey emphasized the impact of global conflicts on the UK economy, citing the International Monetary Fund’s praise for the government’s fiscal discipline. However, the Conservatives criticized the Labour government, accusing it of losing control of the economy and calling for tax cuts and spending reductions to improve the cost of living.
Economists like Ruth Gregory from Capital Economics warned that the borrowing figures signal a challenging fiscal outlook. She expects the Budget to focus on maintaining current policies rather than making significant economic changes, leaving tough fiscal decisions for next year. The upcoming Budget on 28 October will aim to balance growth with fiscal responsibility, ensuring stability while addressing rising living costs for families and businesses.