London Daily

Focus on the big picture.
Sunday, Jun 28, 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
GB News Pundit Charged With Fraud Over Alleged Conduct as Former Labour Adviser
Reform UK Gains Parliamentary Visibility in First Senedd Opposition Appearance
Metropolitan Police Arrest Man on Suspicion of Attempted Murder After London Car Incident
Ocado Chief Executive Tim Steiner Faces Scrutiny Over £100 Million Remuneration Package
British Chambers of Commerce Downgrades UK Growth Outlook to 0.9 Percent for 2026
Nottingham University Hospitals Maternity Failings Trigger Renewed Calls for Public Inquiry
Severe Heatwave Disrupts UK Transport Networks and Strains Public Services Across England
Labour Leadership Transition Raises Prospect of Andy Burnham Becoming UK Prime Minister
UK Government Confirms Further Medicine Price Concessions for Community Pharmacies in June
British Chambers of Commerce Calls for Public Procurement Reform to Boost Regional Growth
Thousands Mark Armed Forces Day Across the United Kingdom With National Parades and Flypasts
Man Arrested in Ealing on Suspicion of Attempted Murder After Vehicle Ramming Incident Injures Five
Cambridge South Station Opens With £250 Million Investment to Strengthen Life Sciences Corridor
UK Heat-Health Alerts Extended Across England as High Temperatures Persist
Thames Water and Energy Operators Warn of Peak Demand Risks During UK Heatwave
Government Conference Highlights Push for Evidence-Led Policy Across UK Public Sector
Insolvency Service Reports Improved Confidence in UK Insolvency System
Security Industry Authority Finds Widespread Safety Failures in UK Night-Time Economy
Nigel Farage Expands Anti-WHO Campaign Into United States With New Lobbying Structure
Home Secretary Seema Mahmood Unveils New Safe Routes Plan for Asylum Seekers
UK Government Warns of Peak Electricity and Water Pressure Amid Ongoing Heatwave
New Nuclear Plant in Wales Named Gwyndod Power Station as Energy Strategy Advances
UK Announces First Major Hydropower Projects in Four Decades to Expand Renewable Capacity
Thirteen Men Charged in Major UK Sexual Abuse Case as Investigation Continues
UK Launches Cross-Sector Climate Security Taskforce Linking Environment and National Security
UN Secretary-General António Guterres Calls for Urgent Global Methane Emissions Cuts in London
World Bank Approves $1 Billion UK-Backed Financing Package for Ukraine Recovery
UK Pledges Emergency Aid and Rescue Team Deployment to Earthquake-Hit Venezuela
Bank of England Holds Interest Rates at 3.75 Percent for Fourth Straight Meeting
Record-Breaking Heatwave Puts Strain on UK Health Services and Energy Networks
London Ambulance Service Sees Record Emergency Demand as Heatwave Intensifies
British Chambers of Commerce Warns of Prolonged Weak Investment Climate Through 2027
Bank of England Holds Interest Rates as Inflation Risks Persist
UK Construction Sector Faces One Percent Contraction Amid Cost and Investment Pressures
Former DUP Leader Sir Jeffrey Donaldson Convicted of Sexual Offences
Church of England Appoints Dr Linsay Cunningham to Lead Faith and Public Life Division
UK Armed Forces Day Marked Nationwide With Events From Aberdeen to the Scilly Isles
Rising Tensions in Edinburgh Prompt Joint Warning From Scottish Local Government Leaders
UK Construction Sector Forecast to Contract One Percent in 2026 on Cost Pressures
UK Parliament Backs 87 Percent Emissions Cut as Government Deepens Electrification Drive
British Chambers of Commerce Forecast Weak UK Growth as Investment and Demand Slow
Bank of England Holds Interest Rates at 3.75 Percent Amid Energy and Inflation Uncertainty
London Ambulance Service Reports Record Surge in Life-Threatening Emergency Calls During Heatwave
UK Parliament Approves Legally Binding 87 Percent Emissions Cut Target by 2040
United Kingdom Records Third Consecutive Day of Record June Heat as Europe Faces Worsening Heatwave
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
×