UK inflation rises to 3.5%, and borrowing is higher than forecast ahead of the Budget

The Office for National Statistics (ONS) published data on inflation and public finances on 21 October 2026. Both sets of figures show the conditions in which Chancellor John Healey is finishing preparations for his first Budget. This is how Faisal Islam of BBC News describes it in his commentary.

Inflation

According to the ONS, inflation as measured by CPI was 3.5% year on year in September 2026. In August it was 3.1%. CPIH, 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. According to the Monetary Policy Committee's analysis, most of the August deviation from the target was due to energy prices, mainly motor fuels. The Committee forecasts that inflation will rise to around 3.75% in the last quarter of 2026 and slightly above 4% in the first quarter of 2027. It notes that the path of energy prices is highly uncertain.

Borrowing

Public sector borrowing was £24.5 billion in September 2026. That is £1.8 billion (7.7%) more than in September 2025 and £1.9 billion more than the Office for Budget Responsibility (OBR) had assumed. The ONS points out that spending, including higher debt servicing costs, grew faster than government revenue. Inflation was partly responsible for this.

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

Budget

House of Commons Library analysts write that higher inflation, the possibility of interest rate rises and higher-than-expected borrowing make for a difficult backdrop for the chancellor. According to the Library, the OBR is due to publish its economic and fiscal forecast on 28 October 2026. The next ONS inflation data will be released on 18 November 2026.

What this means for you

Higher inflation means prices in shops, bills and fuel rise faster. Budget decisions, such as those on taxes or benefits, may also affect people living in the UK who have moved from Poland. For now, it is not known what the chancellor will announce. The details will only be known once the Budget has been announced.