Britain's Oct. 28 Budget will arrive with borrowing above the forecast and inflation accelerating, leaving Chancellor John Healey to present fiscal plans amid rising price and financing pressures.
The Office for National Statistics (ONS) put public-sector net borrowing at £24.5 billion in September, £1.9 billion above the Office for Budget Responsibility (OBR)'s forecast. The ONS said the total was the second highest for September on record before inflation adjustment. Central-government debt interest totaled £10.9 billion, the largest September amount in monthly records dating to 1997. EY estimated fiscal headroom at £11.3 billion, down from £23.6 billion in March; that is the firm's estimate, not an updated OBR forecast.
Annual Consumer Prices Index (CPI) inflation reached 3.5% in the 12 months to September, up from 3.1% in August. Transport, led by motor fuels, gave the strongest upward push to the annual rate, the ONS said. The Bank of England has linked higher energy prices to the Middle East conflict. The Office of Gas and Electricity Markets (Ofgem) said its price cap increased 4% for a typical household on a default tariff paying by direct debit from Oct. 1 to Dec. 31, 2026, citing higher wholesale gas prices.
The government says removing VAT from qualifying household electricity bills in Great Britain will save households an average £45 per year. The relief runs from Oct. 1, 2026, to March 31, 2027, and the government says it is funded by canceling the digital ID program.
The economy continued to expand, but at a slower monthly pace. Real gross domestic product (GDP) rose 0.1% in August after 0.4% increases in both June and July; output grew 0.7% over the three months to August compared with the three months to May. The International Monetary Fund's October 2026 forecast projects UK growth of 1.3% in 2026 and 1.2% in 2027.
Labor and consumer indicators were mixed. Unemployment was 4.7% in June to August, while early estimates showed vacancies falling by 21,000 to 691,000 in July to September. The last comparable non-pandemic reading at this level was in July to September 2014. Retail sales volumes in Great Britain fell 0.4% in September after rising 0.7% in August.
Healey has said he and the prime minister are committed to meeting the fiscal rules in the Budget. The OBR is scheduled to publish its updated Economic and Fiscal Outlook after the Budget on Oct. 28. The Bank of England's next interest-rate decision is Nov. 5, and Ofgem is due to announce its next price cap on Nov. 25.
