Rising inflation and higher borrowing crystalise double dilemma facing the Chancellor 21 October 2026 Inflation hitting its highest rate in almost a year and a £6 billion borrowing overshoot highlight the double dilemma facing the Chancellor in his Budget next week as he tries to ease cost of living pressures while getting government borrowing down, the Resolution Foundation said today (Tuesday). CPI inflation rose to 3.5 per cent in September, 0.1 percentage points more than the market expected, driven by rising fuel prices. A silver lining, however, was the continued moderation of food and drink inflation, which remained at 1.3 per cent compared to 4.5 per cent a year ago. Higher energy bills, with the Energy Price Cap projected to rise to over £2,100 in January, will push inflation up further in the coming months, with the Bank of England forecasting a peak above 4 per cent in the new year. September is a particularly crucial month as its CPI value is used to uprate benefits next year. Today’s figures confirm that the standard allowance in Universal Credit for a single person over 25 will rise by 4.3 per cent (or £4.23) to £102.28 a week (and by £6.63 to £160.55 a week for couples). The New State Pension will rise by 3.9 per cent (or £9.40) to £250.70 a week, while most other working-age benefits will rise by 3.5 per cent, including Child Benefit which will increase by £0.95 to £28.00 a week for the first child and by £0.65 a week to £18.55 for each additional child. The Foundation cautions that that some key benefits will not increase in line with inflation however. The ongoing cash freeze in Local Housing Allowance even as private rents continue to climb, means that a growing number of low-income tenants will face record-level shortfalls in support with their rent unless action is taken in the Budget. Separate ONS data illustrated the public finances challenge facing the Chancellor. While stronger than expected economic growth has driven a welcome boost to corporate tax receipts in September (receipts were 9 per cent higher than the same month last year), overall borrowing is £6 billion higher than the OBR forecast six months into the financial year. An overshoot in Government spending has been driven by debt interest (£3.8 billion higher than forecast) and net social benefits, including pensions (£2.5 billion higher than forecast). The national debt now stands at over £3 trillion for the first time. Greg Thwaites, Interim Chief Economist at the Resolution Foundation, said: “Rising inflation and record levels of debt illustrate the double dilemma facing the Chancellor – how to ease cost of living pressures for families while keeping a lid on Government borrowing. “Inflation is already uncomfortably high, and it will get even worse in the coming months as the Energy Price Cap rises just as families start to put the heating on. Support with energy bills will be needed this winter. “The support must be temporary and targeted given the state of the public finances. Borrowing is already off track this year, debt has hit £3 trillion, and markets are closely scrutinising government’s ability to keep on top of the public finances. “The Chancellor must confront this double dilemma head on in his Budget next week rather than duck reality.”
