UK inflation rises to 3.5% and borrowing runs above forecast ahead of Budget

The Office for National Statistics (ONS) published inflation and public finance figures on 21 October 2026. Together they show the conditions in which Chancellor John Healey is finishing preparations for his first Budget, as BBC News's Faisal Islam describes in his analysis.

Inflation

According to the ONS, CPI inflation was 3.5% in the 12 months to September 2026, up from 3.1% in August. The CPIH measure, which includes owner occupiers' housing costs, rose to 3.6% from 3.3% a month earlier.

Inflation has been above the Bank of England's 2% target for almost two years. The Monetary Policy Committee's analysis suggests most of August's deviation from the target was driven by energy prices, mainly motor fuels. The committee expects inflation to rise to around 3.75% in the final quarter of 2026 and slightly above 4% in the first quarter of 2027. It says the path of energy prices is highly uncertain.

Borrowing

Public sector borrowing was £24.5bn in September 2026. That is £1.8bn (7.7%) more than in September 2025 and £1.9bn above what the Office for Budget Responsibility (OBR) had forecast. The ONS says spending, including higher debt interest costs, grew faster than government income, partly reflecting inflation.

In the financial year to the end of September, borrowing reached £97.8bn. That is £4.4bn (4.3%) less than a year earlier, but higher than the OBR forecast. Public sector debt at the end of September was provisionally estimated to have exceeded £3 trillion.

The Budget

House of Commons Library analysts say higher inflation, the prospect of interest rate rises and higher-than-expected borrowing make for a challenging backdrop for the chancellor. According to the library, the OBR is due to publish its economic and fiscal outlook on 28 October 2026. The next ONS inflation figures are due on 18 November 2026.

What this means for Poles in the UK

Higher inflation means prices for shopping, bills and fuel are rising faster. Budget decisions on taxes or benefits could also affect people from Poland living in the UK. It is not yet known what the chancellor will announce, and details will only be clear once the Budget is delivered.