London Daily

Focus on the big picture.
Friday, Aug 14, 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
UK Condemns Houthi Actions and Warns of Red Sea Threat to Global Trade
UK and Solomon Islands Open Wildlife Photography Exhibition in Honiara
UK Small Businesses Face Continued Cash Flow and Tax Pressures
Greatham Marsh Restoration Restores Tidal Wetland in Hartlepool After More Than 200 Years
UK Health Regulator Urges University Students to Check Meningitis and Measles Vaccination Status
Mining Remediation Authority Completes Major Ground Stabilization Works in Scottish Community
UK Food Crime Investigators Seize 33 Tonnes of Illegal Food in Multi-Agency Operation
Technical Qualification Uptake Hits Record High as Advanced Mathematics Results Improve
UK Summer Temperatures on Course to Challenge Long-Standing Records, Met Office Says
UK Farmers Bring Forward Cereal Harvests as Drought Threatens Yields
Wildfires Surge Across England and Wales as Fire Chiefs Report Record July
UK Nurses Warn of Heat Risks as Hospital Staff Struggle With Extreme Temperatures
Southern Water Seeks Drought Order for Hampshire and Isle of Wight Amid Water Shortages
UK Heatwave Pushes West London Temperature to 38.1 Degrees as Health Alerts Continue
UK Economy Grows 0.4% in Second Quarter Despite Global Uncertainty
China’s Kimi Launches AI-Focused Credit Card With Agricultural Bank of China and American Express
UK Residents Gather to Watch Rare Partial Solar Eclipse
Reform UK Deputy Leader Richard Tice Faces Criticism Over Legal Threat Against Guardian Journalist
Michael Forsyth Elected Speaker of the House of Lords
Cambridge Researchers Launch £20 Million Human Organoid Drug Testing Programme
Heathrow Loses European Passenger Traffic Lead to Istanbul Airport
Households Near New UK Electricity Pylons to Receive £250 Annual Energy Bill Discount
UK Government Estimates Zero-Hours Contract Ban Could Cost Employers Up to £3 Billion a Year
Robert Jenrick Leaves Conservatives for Reform UK in Major Parliamentary Defection
UK Police Chiefs Urge Government to Block Early Release of Andrew Harper Killers
UK Government Holds Emergency Cobra Meeting as Drought and Heatwave Raise Wildfire Risks
Former Labour Adviser Arrested on Suspicion of Spying for China Held Privileged Access as Top Party Donor
Turkish Parliament Passes Landmark Bill Granting Conditional Amnesty to Disarmed PKK Members
Donald Trump Warns FIFA Against Ousting Gianni Infantino Amid Revolt by Global Football Leaders
Jeff Bezos Joins Investor Group Closing In on $6 Billion Liverpool FC Stake
Police Conduct Cross-Border Raids Against Northern England Drug Network
Nicola Sturgeon Protested at Edinburgh Festival Fringe Event
Major UK Retail Chain Enters Administration With One Hundred Fifty-Four Stores Set to Close
Heathrow Renews Call for Runway Expansion After Losing Europe’s Busiest Airport Ranking
Government Condemns One Million Pound Thames Water Executive Bonus Amid Drought
NHS England Says More Than One Hundred Thousand Hepatitis C Patients Have Been Cured
UK Foreign Secretary Ed Miliband Calls for End to West Bank Settler Violence
UK Prepares for Deepest Partial Solar Eclipse Since Nineteen Ninety-Nine
UK Heatwave Triggers Amber Health Alerts as Economic Losses Reach Four Point Four Billion Pounds
UK Offers Electricity Bill Discounts to Communities Hosting New Power Infrastructure
Bank of England Expected to Hold Interest Rates at Three Point Seven Five Percent
UK Government Moves to Ban Subscription Traps and Misleading Retail Discounts
Andy Burnham Gives Councils New Powers to Block Betting and Vape Shops
UK Councils to Receive Sweeping Planning Powers to Ban New Vape and Betting Shops
Nicola Sturgeon Says She Has No Contact With Estranged Husband After SNP Embezzlement Case
Police Arrest Two Men After Aberdeenshire Defense Technology Office Break-In
Greater Manchester Councils Gain Powers to Restrict New Vape and Betting Shops
Coroner Finds Treasury Workplace Failures Contributed to Personal Assistant’s Suicide
English and Welsh Courts Ban Meta Smart Glasses Over Recording and Privacy Risks
Strait of Hormuz Disruption Could Double UK Inflation and Trigger Recession, Forecasters Warn
×