UK public debt passes £3 trillion for the first time as borrowing climbs before Healey’s Budget

Britain’s public debt has surpassed £3 trillion for the first time^1,2.

The fiscal deficit reached £97.8 billion from April to September, the first half of the financial year¹. Debt and the deficit rose in September alongside inflation².

Central government debt interest came to £10.9bn in September alone³.

The borrowing figures were released on Wednesday together with inflation data, which showed consumer price inflation rising to 3.5% from 3.1%⁶. Both inflation and borrowing hit their highest levels this year⁵.

The release leaves the government confronting rising inflation and rising debt in the same week as it finalises the Budget^4,7.

Why it matters to investors

The figures show the constraints facing Chancellor John Healey as he puts the finishing touches to his Budget⁴. Rising inflation and debt have knocked the government ahead of the statement⁷.

Healey has been handed a double dose of bad news, with higher borrowing and a heavy debt interest bill arriving in the same release as higher inflation^3,5. A monthly interest cost of £10.9bn has to be accommodated before any new spending or tax measures in the Budget³.

The inflation side of the release adds pressure through interest rates. “Higher inflation, with more in the pipeline, could lead the Bank of England to raise interest rates,” said Yael Selfin, chief economist at KPMG UK⁵. Following Wednesday’s data, analysts increasingly predicted a move by the Bank of England⁷.

Inflation and borrowing both reached their highest levels of the year in the same set of figures, which leaves the Treasury and the central bank facing the same uncomfortable numbers at once⁵.

What to watch

For gilt investors, the figures to follow are the size of the deficit so far this year and the monthly interest bill, both of which frame what the Budget can credibly promise^1,3.

The Budget will show how Healey intends to respond to a deficit of £97.8 billion in six months and a debt stock that has crossed £3 trillion^1,4.

The Bank of England’s next decision will matter alongside the Budget. Inflation has risen to 3.5% from 3.1%, and analysts increasingly expect the Bank to act, a step that one economist tied directly to the inflation still in the pipeline^5,6,7.