Total UK government debt hits £3tn for first time while inflation jumps to highest in nearly a year – as it happened

The UK’s fiscal position is also not exactly rosy, as the latest public finance figures show.

The Treasury ran a higher than expected budget deficit of £24.5bn last month as rising inflation pushed up the interest paid on government debt, increasing pressure on John Healey before his budget next week.

Official figures show the government paid £10.9bn in debt interest : the highest September figure since records began, and only the eighth time the monthly number has been above £10bn.

Some government bonds are directly linked to the retail prices index measure of inflation, with payments rising in line with it. RPI has increased in recent months as the Iran war has pushed up energy costs. The Office for National Statistics said this had 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 size of the economy it has dipped to 94%, from 95% a year ago.

The £24.5bn monthly deficit on the public finances was up from £17bn in August, and £1.9bn higher than the independent Office for Budget Responsibility had forecast.

In the financial year so far, public sector net borrowing is £97.8bn, the ONS said – £4.4bn lower than last year but still £6bn higher than the OBR expected. The data underlines the impact of the Iran war on the public finances.

Healey has been keen to stress his determination to stay within the fiscal rules set out by his predecessor as chancellor, Rachel Reeves .

However, he is widely expected to accept a slimmer financial buffer, or “headroom”, against those rules than the £24bn Reeves had built up at the time of her spring forecast .

Henning Diederichs , director for public sector at the Institute of Chartered Accountants in England and Wales , said:

double quotation mark The rising cost of borrowing and inflation mean that servicing the debt is a significant concern for the chancellor as he prepares for his first Budget next week.

Pressures are mounting to provide additional support for rising energy bills, but the fiscal challenges to balance spending are becoming more acute, particularly as John Healey has less headroom than in the spring forecast.

This is why the government needs to clarify the definition of current budget balance in the fiscal stability rule, given it is changing from a current budget surplus at this Budget. Ambiguity about what the new definition means for headroom could create a negative inflationary loop meaning further increases in borrowing costs and reduced investor confidence.