The UK government reported a higher than expected budget deficit of £24.5 billion for September, driven by rising inflation and increased interest payments on government debt. This development adds pressure on John Healey, the Chancellor, as he prepares for his upcoming budget presentation next week.

Rising Debt Interest Payments

Official figures reveal that the government paid £10.9 billion in debt interest last month, marking the highest September figure since records began. This is only the eighth instance where monthly debt interest has exceeded £10 billion. The increase in payments is largely attributed to some government bonds being linked to the Retail Prices Index (RPI), which has surged due to rising energy costs amid the ongoing Iran war.

The Office for National Statistics indicated that the war has added £4 billion to debt interest costs in September alone. Total government debt is estimated to have reached £3 trillion for the first time, although as a percentage of the economy, it has decreased to 94%, down from 95% a year ago.

Context of the Budget Deficit

The £24.5 billion monthly deficit represents an increase from £17 billion in August and is £1.9 billion higher than forecasts from the independent Office for Budget Responsibility (OBR). For the current financial year, public sector net borrowing stands at £97.8 billion, which is £4.4 billion lower than the previous year but still £6 billion above OBR expectations.