UK annual inflation accelerated to 3.5% in September, the highest rate since last October, driven by motor fuel costs. Separately, total government debt is estimated to have reached £3tn for the first time, as debt interest hit a September record.
UK inflation accelerated to an annual rate of 3.5% in September from 3.1% in August, the highest rate since last October. The figures have added to expectations that the Bank of England will raise its base rate by a quarter point to 4% at its meeting next month.
Fuel prices push the headline rate higher
Overall motor fuel prices leapt 29.8% in the 12 months to September, up from 23% in August. The average price of petrol rose by 8.2 pence a litre between August and September, to 169.5p, the highest since August 2022. Diesel climbed 10.7 pence to an average of 192.5p, the highest price recorded since July 2022.
Other measures also rose. Services price inflation rose to 3.7% from 3.4%, also higher than expected, while the core rate that strips out volatile items like energy and food rose to 2.8% from 2.6%.
Food was the exception. Food prices fell 0.2% between August and September, leaving the annual food inflation rate unchanged at 1.3%.
Debt interest climbs with inflation
Higher inflation is also feeding into public finances. The Treasury ran a budget deficit of £24.5bn in September, higher than expected, as rising inflation pushed up the interest paid on government debt. The figure was up from £17bn in August and £1.9bn above the Office for Budget Responsibility's forecast.
Official figures show the government paid £10.9bn in debt interest, the highest September figure since records began. Some government bonds are linked to the retail prices index, and the Office for National Statistics said the rise in that measure added £4bn to debt interest costs in September alone.
Total government debt is estimated to have hit £3tn for the first time, although as a share of the economy it dipped to 94% from 95% a year earlier.
Pressure builds before next week's budget
The data raises the stakes for John Healey, who presents his budget next week. Roger Lee, head of equity strategy at Cavendish, said the combination of stronger-than-expected inflation, a resilient labour market and firmer wage growth has materially increased the likelihood of an "insurance" rate rise in November, with the oil price remaining above $110/bbl.
Lee added that higher interest rates, alongside rising government debt, will further complicate the UK's fiscal outlook ahead of the budget.
Source: The Guardian
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