London Daily

Focus on the big picture.
Saturday, Aug 22, 2026

Cost of living: Inflation fuels 63% hike in UK debt costs as borrowing outstrips forecasts

Cost of living: Inflation fuels 63% hike in UK debt costs as borrowing outstrips forecasts

Chancellor Nadhim Zahawi acknowledges the pressure on the public finances, as analysts say the latest figures will mean "tough choices" for whoever takes office following the Conservative leadership election.

Soaring inflation has seen interest payments on government debt leap by 63% over the past year, official data reveals.

Figures published by the Office for National Statistics (ONS) also showed the UK borrowed more than expected in July as public spending outstripped taxes and other income.

Government borrowing hit £4.9bn in July, according to the ONS, dwarfing the £0.2bn forecast by its own independent financial watchdog, the Office for Budget Responsibility.


It was also significantly ahead of the £2.8bn forecast by analysts and brings the total budget deficit for the year so far to £55bn.

Back in July 2019, prior to the COVID-19 pandemic which prompted a historic surge in government borrowing, the public finances were in surplus by £0.9bn.

It came as the government's debt costs rose to £5.8bn in July up by £2.3bn from last year due to increases in Retail Price Index (RPI) inflation.

Earlier this week, the ONS revealed that RPI surged to 12.3% in July, while the broader Consumer Price Index (CPI) inflation figure hit a new 40-year-high of 10.1%.

The latest data also showed government spending increased by £3.4bn to £76.5bn in July compared with the same month year.

Responding to the figures, Chancellor Nadhim Zahawi said: "I know that rising inflation is creating challenges for families and businesses, and it is also putting pressure on the public finances by pushing up the amount we spend on debt interest.

"To help people during this difficult time, government support is continuing to arrive in the weeks and months ahead, targeted to those who need it most, like pensioners, people on low incomes, and those with disabilities.

"We are taking a balanced approach: safeguarding the public finances while providing significant help for households."

Michal Stelmach, senior economist at KPMG UK, said the latest figures will mean "tough choices" for the next chancellor following the Conservative leadership election.

He added: "The balance of risks to public finances has clearly shifted to the downside.

"The cost of living crisis will likely require further support to households, while a slowing economy will put downward pressure on receipts, making the fiscal targets ever less achievable."

The frontrunner in the Conservative Party leadership race, Foreign Secretary Liz Truss, has said she will cut taxes, while her rival, former chancellor Rishi Sunak, has warned that will risk fuelling inflation and has proposed more direct, targeted support.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, has estimated that if Ms Truss wins, Britain's budget deficit is likely to hit about £170bn in the current financial year, about three times its size before the pandemic.

Meanwhile, new research indicated consumer confidence is at an all-time low in light of "acute concerns" about the soaring cost of living and bleak economic outlook.

The Bank of England has warned escalating inflation is likely to tip the UK into recession later this year.

Newsletter

Related Articles

0:00
0:00
Close
The rise and fall of Hui Ka Yan, China’s richest man
Woke: Britain Considers Plain Packaging for Cigars as Specialist Shops Warn of Industry Collapse
Britain's Public-Service Productivity Remains Below 2019 as £80 Billion Output Gap Fuels WFH Debate
Mandelson Epstein Case in Jeopardy as U.S. Files Stay Out of Reach
Prince Harry and Six Others Ordered to Pay £9.5 Million After High Court Defeat
Bank of England Holds Interest Rate at 3.75% as Inflation and Energy Risks Persist
UK AI Security Tests Find Autonomous Agent Attempting Malicious Code Injection
UK Economy Grows 0.4% in Second Quarter Amid Global Pressures
UK Joins European Allies in Condemning Israeli Settlement Plans in West Bank E1 Area
Multiple People Killed in A66 Collision Near Middlesbrough Involving Police Vehicle
UK Government Holds First National Day for Victims and Survivors of Terrorism
UK Met Office Warns of Severe Autumn Storms as Strong El Niño Follows Historic Drought
Petrol Bombs Set Luxury Cars Alight Outside Birmingham Wedding as Police Hunt Three Men
Bitcoin Surges Toward $80,000 as Short Squeeze and ETF Inflows Ignite Crypto Rally
Prince Harry and Co-Claimants Ordered to Pay £9.5 Million Toward Daily Mail Publisher’s Legal Costs
Prince Harry and Meghan Markle Reportedly Plan Return to Britain With Their Children
UK Court Ruling Threatens Deportation Plans for Potential Trafficking Victims to Albania
Kemi Badenoch Presses UK Government for Decisions on Rosebank and Jackdaw Oil Fields
UK Foreign Affairs Committee Chair Calls for Ban on Goods from Occupied West Bank
Andy Burnham Government to Place Civil Servants Directly in English Mayoral Offices
Met Office Warns Major El Niño Could Bring Stormier, Wetter Autumn to UK
UK Economy Gains Unexpected Momentum Ahead of Andy Burnham Government’s First Budget
Twenty-Nine US States Take Meta to Trial Over Alleged Child Addiction on Instagram and Facebook
Former Scottish National Party Executive Peter Murrell Jailed for Five Years Over £400,000 Embezzlement
Moderna and Merck's Personalized Cancer Vaccine Succeeds in Historic Late-Stage Melanoma Trial
Prince Harry and Meghan to Move Back to Britain With Their Children
England and Wales Have Fewer Than 1,800 Prison Places Left for Men
Royal Navy to Accelerate DragonFire Laser Deployment Against Growing Drone Threat
Northern Ireland Approves Five Hundred Million Pound Belfast Harbour Expansion
Great British Railways Takes Full Control of Avanti West Coast as Rail Nationalisation Reaches Final Stage
UK AI Safety Institute Calls for Mandatory Security Audits of Advanced AI Models
Scotland Secures Three Billion Pounds for Floating Offshore Wind Hub in Aberdeen
Government Overrides Local Councils to Approve Green Belt Housing Across Southern England
UK and EU Move Toward Mutual Recognition of Food Standards to Ease Cross-Channel Trade
Government Plans Multibillion-Pound Private Healthcare Expansion to Cut NHS Surgical Backlogs
Bank of England Signals Faster Rate Cuts as Inflation Falls Below the Two Percent Target
Suspected People Smuggler Arrested After Investigation Identified Him
Children's Doctors Warn That Vaping Can Lead Young People to Smoking
Hundreds of Thousands of Students Receive GCSE and Vocational Results Across England, Wales and Northern Ireland
Here Is What Can Never Happen in Your Country: Taiwan Is Giving Money to All Its People Because It Collected Too Much Tax
UK Inflation Rises to 2.9% as Energy Bills Jump
UK Issues New Conduct Guide for Asylum Seekers on Consent and Respect
Moderna Shares Surge After Positive Personalized Skin Cancer Trial Results
UK Markets Watch US National Debt Surpass Forty Trillion Dollars
UK Broadcasters Urge Government to Invest in Digital Participation and Broadband
CVC Capital Partners and Standard Life Launch Two Billion Pound Pension Risk Transfer Venture
UK Private Sector Productivity Growth Accelerates in Second Quarter
UK Foreign Secretary Ed Miliband Condemns Israeli E1 Settlement Tender
UK Watchdog Investigates Trainline, Virgin Atlantic and RED Driving School Over Hidden Fees
Prince Harry and Meghan Markle Plan Move to Private Home Outside London
×