London Daily

Focus on the big picture.
Wednesday, Jun 10, 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
Farmers Warn of Crop Losses Following Months of Unseasonal Rainfall
Civil Aviation Authority Launches Review of Regional Airport Operations
Met Office Issues Heat-Health Alert Across Parts of England
National Grid Introduces New Measures to Protect Winter Energy Supply
Northern England Rail Upgrades Receive Additional Government Funding
Wales Advances Green Hydrogen Strategy to Decarbonize Heavy Industry
UK Expands Recruitment Incentives to Address Shortage of STEM Teachers
High Court Opens Door to Climate Liability Claims Against Major Industrial Emitters
Police Service of Northern Ireland Investigates Major Personnel Data Breach
Defense Ministry Overhauls Procurement System to Accelerate AUKUS Submarine Program
Net Migration Remains Above Government Expectations, New Data Shows
UK and Scottish Governments Agree Framework for Expanded North Sea Wind Development
UK Treasury Launches New Tax Incentives to Boost AI and Semiconductor Investment
Bank of England Signals Continued Caution on Interest Rate Cuts
UK Unveils £10 Billion NHS Digital Modernization Plan Centered on AI Integration
Nebius Opens Major Robotics and Physical AI Laboratory in London
Bank of England Data Shows Strong Rise in New Mortgage Approvals
Network Rail Completes Landmark Upgrade of Severn Tunnel Rail Infrastructure
East West Rail Passenger Services Between Oxford and Milton Keynes Set for December Launch
GlaxoSmithKline Reportedly Pursues £7 Billion Acquisition of US Cancer Drug Developer Nuvalent
Bank of England Signals Interest Rates Likely to Remain Unchanged Despite Energy Market Risks
NHS Trusts Launch Job-Cutting Programmes as Financial Pressures Intensify Across England
More Than 130 Labour MPs Urge Ban on Trade With Israeli Settlements
Keir Starmer Orders Technology Firms to Introduce Smartphone Nudity Controls for Under-18s
UK Unveils £400 Million National AI Supercomputer Fund and New Economics Institute
Japanese Technology Firm Fujitsu Launches Advanced Artificial Intelligence Tool for Corporate Disclosures
South Africa Officially Launches Nationwide Campaign for Highly Contested Local Government Elections
United Kingdom Commits Additional Funding for Unexploded Ordnance Clearance in Laos
Singapore Announces Stringent New Greenhouse Gas Regulations for Commercial Cooling Systems
Cambodia and Thailand Hold High-Level Border Security Talks at United Nations Headquarters
Myanmar Military Government and China Sign Major Agreement to Upgrade Media and Cultural Cooperation
Knife Attack at Swiss Train Station Leaves Three Injured in Suspected Act of Domestic Terrorism
Transnational Extortion Gang Threatens Canadian Police With Army of One Thousand Armed Operatives
Australia Imposes Forty-Two-Day Quarantine on Cruise Ship Passengers Following Deadly Hantavirus Outbreak
International Monetary Fund Unlocks Seven Hundred Million United States Dollars for Sri Lanka Following Economic Reforms
Australia Launches Record One Point Four Billion Dollar Lawsuit Against Chemical Giant 3M Over Contamination
China and Canada Foreign Ministers Meet in Ottawa in Effort to Stabilize Strained Diplomatic Ties
Indonesia Demands Urgent United Nations Security Council Reform Amid Escalating Global Conflicts
Extreme Weather Patterns Trigger Severe Drought in Madagascar and Destructive Flooding in East Africa
Indian State of Karnataka Faces Political Upheaval as Chief Minister Siddaramaiah Abruptly Resigns
Philippines and Japan Reaffirm Defense Ties as Crucial for Indo-Pacific Regional Stability
Norway Joins French Nuclear Deterrence Initiative in Major Shift for European Security Architecture
Global Critical Mineral Alliances Expand as Western Nations Move to Counter Chinese Supply Dominance
United States Imposes Fifty Percent Tariffs on Mexican Steel and Aluminum Ahead of Trade Pact Review
European Union and China Head Toward Major Trade Conflict Over Clean Technology Exports
United States Economic Growth Severely Downgraded to One Point Six Percent as Stagflation Fears Mount
World Health Organization Warns Central African Ebola Epidemic is Outpacing Containment Efforts
United States Treasury Department Conditions Sanctions Relief on Reopening of the Strait of Hormuz
Iranian Air Defenses Intercept and Destroy United States Military Drone Over Bushehr Province
Iranian Armed Forces Launch Ballistic Missiles Toward Unspecified Targets Prompting Regional Condemnation
×