London Daily

Focus on the big picture.
Friday, Jun 26, 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
Robert Jenrick Defends £5 Million Donation to Nigel Farage Amid Political Scrutiny
Plymouth Museum The Box Wins 2026 Art Fund Museum of the Year Award
UK Government Faces Backlash Over Plans to Use Former Military Sites for Asylum Accommodation
Labour Party Faces Pressure Over Cabinet Stability as Senior Figures Clash on Policy Direction
Heathrow Airport Forecasts Passenger Decline in 2026 as Costs and Climate Disruption Mount
UK Energy Regulator Approves Expansion of Long-Duration Storage to Boost Power System Resilience
Crown Estate Reports Third Consecutive Year of £1 Billion Profit as Debate Over Royal Finances Intensifies
Teenager Charged With Murder in Wales Following Death of 14-Year-Old Boy
Nottingham University Hospitals Maternity Failures Trigger Calls for Public Inquiry Into Patient Safety
EasyJet Rejects £4.9 Billion Takeover Offer From Castlelake but Keeps Door Open for Further Talks
Record Heatwave Triggers UK Transport and Infrastructure Strain as Heathrow Revises Passenger Forecast Downward
Ofgem Approves Sixteen Long-Duration Energy Storage Projects to Strengthen UK Grid Stability
Labour Government Faces Internal Tensions Over Cabinet Decisions and Net Zero Policy Direction
British Food and Drink Exports Fall to Decade Low Amid Trade Friction and US Tariffs
Great Britain Grid Operator Spends £10 Million to Stabilize Electricity Supply During Heatwave Demand Surge
UK Parliament Committee Calls for Urgent National Adaptation Strategy as Extreme Heat Strains Public Infrastructure
Record-Breaking Heatwave Pushes England’s National Health Service to Critical Incident Status as Hospitals Struggle With Surge in Emergencies
UK Government Launches Review of Voluntary National Insurance Contributions System
UK Planning Inspectorate Reports Key Infrastructure and Planning Milestones in Annual Review
UK Government Reviews Travel Expense Reimbursement Rates for Employers and Employees
Civil Nuclear Constabulary Launches National Digital Memorial for Officers Killed in Service
UK and US Expand Collaboration on Nuclear Fusion Research and Workforce Exchange
Environment Agency Secures £275,000 Enforcement Deal with Anglian Water Over Permit Breaches
Independent Inspector Flags Ongoing Failures in UK Home Office Border Case Management
UK Government Considers Zero VAT Rate on Land for Social Housing Development
Bank of England Reports Sharp Drop in Emissions and Warns on Climate-Driven Financial Risk
Consumer Confidence in the UK Falls at Fastest Quarterly Rate Since 2022
UK Borrowing Costs Rise Sharply on Gilt Markets Amid Fiscal and Political Concerns
UK Government Plans Legislation to Bring British Steel into Public Ownership
UK Government Secures £210 Million Nuclear Fuel Deal to Support Ukraine Energy Security
London Ambulance Service Reports Record Emergency Call Volume Amid Severe Heatwave
United Kingdom Faces Record June Heatwave as Temperatures Hit 36.7°C in Somerset
UK Financial Services Reform Debate Intensifies Over Ministerial Regulatory Powers
UK Energy Price Cap Rise Expected to Keep Inflation Above Target Through 2026
UK Biohacking and AI Wellness Trends Drive Surge in Personal Health Monitoring
UK Social Care Sector Sees Workforce Shift as Overseas Recruitment Masks Domestic Labour Decline
Nuffield Trust Warns UK Health Budgets Remain Vulnerable Despite Record Spending Levels
UK Coal Pension Surplus Debate Returns to Parliament as Reform UK MP Seeks Clarity on Distribution
UK MPs Consider E-Petition Calling for NHS Newborn Screening for Spinal Muscular Atrophy
UK Parliament Debates E-Petition Calling for Inquiry Into Pro-Israel Influence in Politics
UK Economy Grew 0.6 Percent in Q1 2026 but Business Sentiment Weakens Over Geopolitical Risks
UK Financial Services Bill Enters Lords Committee Stage With Expanded Ministerial Powers
UK Armed Forces Bill Advances With Plans for Defence Housing Service and Drone Defence Measures
UK Treasury Proposes Higher Electricity Generator Levy and Updated Mileage Allowance Rules
UK Parliament Debates Health Bill Amid Persistent GP Access and Patient Satisfaction Concerns
UK Financial Sanctions Regulator Signals Faster, Intelligence-Led Enforcement Strategy
British Chambers of Commerce Warns Business Confidence Crisis Is Dampening UK Investment
UK Parliament Debates Carbon Budget Order as Pressure Mounts on Net Zero Delivery
UK Energy Price Volatility Reinforces Pressure for Faster Electrification of Economy
UK Defence and Aerospace Strategy Gains Momentum as Keir Starmer Pushes Industrial Cooperation in Berlin
×