21 October 2026
If you are covering UK inflation and public sector finance data, please see the following comment from Richard Carter, head of fixed interest research at Quilter Cheviot:
“With a week to go until John Healey’s eagerly anticipated first Budget, inflation figures provide a stark reminder of the UK’s difficult economic position. Inflation has hit 3.5% in September, up significantly from August’s 3.1% reading. Much of the upward pressure has come from transport costs, particularly motor fuels, with petrol and diesel prices rising sharply in recent months and hitting consumers and businesses alike.
“While underlying inflation has so far remained considerably below the headline rate, there were some less comfortable signs beneath the surface, with both core and services inflation ticking higher. The longer the conflict in the Middle East persists, the greater the risk that higher energy costs seep into other areas of the economy. The Bank of England expects inflation to move slightly above 4% in early 2027, and that backdrop is not particularly conducive to any easing of interest rates.
“Indeed, today’s figures will strengthen the case of those on the Monetary Policy Committee who believe higher rates may be needed to prevent the energy shock becoming embedded in wider prices and wages. Economic growth has remained resilient to date this year, but should rates rise, these are likely to bite in 2027 and hold the economy back as the Bank continues its inflationary battle.
“However, today’s borrowing figures show the government’s problems extend well beyond the immediate inflationary picture. The public sector borrowed £24.5 billion in September, £1.8 billion more than a year earlier and £1.9 billion above forecast. Borrowing has now reached £97.8 billion in the first six months of the financial year, £6 billion more than the OBR expected.
“The £3 trillion debt barrier has also now been broken for the first time, while £10.9 billion was spent on debt interest in September alone. Those numbers illustrate the difficult circle the government is attempting to square. It wants to pursue an ambitious long-term spending programme while borrowing costs and existing debt are already placing significant demands on the public finances."
