UK inflation hits 3.5% as national debt passes £3 trillion

Inflation and fuel

UK inflation rose to 3.5% in September, its highest rate in almost a year, as higher petrol and diesel prices fed through to the cost of living. The consumer prices index measure was up from 3.1% in August and slightly above economists' expectations. Fuel was the main driver. Average petrol prices rose by 8.2p a litre between August and September to 169.5p, the highest in around four years, while separate figures put average pump prices at £1.74 for petrol and £1.99 for diesel. Motor fuel inflation was reported at almost 30% in the year to September.

The rise was linked to the war in Iran and wider Middle East conflict, which has squeezed global oil and gas supplies and pushed up jet fuel, fares and haulage costs. Food and drink inflation remained low and stable at 1.3%, but economists warned that higher fuel costs could feed into household essentials later.

Debt and borrowing

The same data release brought an uncomfortable milestone: national debt passed £3 trillion for the first time. Government borrowing was £25 billion in September on one measure, or £24 billion to £24.5 billion on others, above forecasts and last year. Tax revenues are healthy, but spending on the state pension, other benefits and debt interest is rising. As a share of the economy, debt is at levels last seen in the early 1960s. The figures land a week before the Budget and limit the Chancellor's room for manoeuvre.

Budget and rates

Chancellor John Healey said he would do what he can to give households and businesses "breathing space" on the cost of living, but he also promised to keep borrowing under control. The government cannot afford the kind of universal energy support seen in 2022, when the energy shock was larger. Average household energy bills are set to rise by around 20% in January. The International Monetary Fund has praised Britain's debt reduction plan, but critics say there is no growth plan. The Conservatives said Labour had lost control of the economy.

Markets now expect the Bank of England to raise interest rates next month, with some investors betting on further increases over the next year. That would add pressure on mortgage holders and on the public finances. The Bank's Monetary Policy Committee meets on 5 November. Business groups and households described the squeeze: hauliers said higher fuel costs would push up the price of goods, a pie shop said it was looking at shrinking rather than growing, and pensioners said they were heating their homes less. The Budget next week will be judged on whether it can ease the immediate pressure without adding to the debt.

Energy politics

Energy security is part of the political backdrop. Ministers have approved or are considering domestic gas and oil projects, including Jackdaw and the more controversial Rosebank field. Supporters say domestic supplies can reduce reliance on imports. Campaigners say Rosebank would have a bigger environmental impact and would not bring down bills soon.