UK GOVERNMENT BORROWING RISES TO £18.3BN IN AUGUST

UK government borrowing rose to £18.3bn in August, almost a fifth higher than the same month a year earlier, according to the Office for National Statistics. The figure came in above official forecasts, with one report putting the shortfall at £3.5bn and describing it as the second-highest August borrowing on record, behind 2020. Spending on public services, benefits and other costs grew faster than tax receipts as inflation increased, the ONS said. The figures add pressure on Chancellor John Healey as he prepares his first Budget, due on 28 October.

Inflation rose to its highest rate in five months in August, driven by higher petrol and diesel prices, the ONS said. Interest paid on government debt rose to £8.8bn in August, the highest figure for that month since records began in 1997. This partly reflected higher interest payable on Retail Prices Index-linked government bonds, or gilts, as inflation pushed up borrowing costs. Tax receipts were higher than a year earlier but not enough to offset the increase in spending.

Nick Ridpath of the Institute for Fiscal Studies said debt interest is "a worryingly large share" of spending and has risen since the Office for Budget Responsibility's last forecasts. Ruth Gregory of Capital Economics called the figures a "dismal backdrop" for the Budget, saying they raise the likelihood that Prime Minister Andy Burnham's policy ambitions will be "reined in or delayed" to avoid tax rises or a market backlash. She added that borrowing is likely to keep exceeding forecasts as the economy weakens. Emma Reynolds, chief secretary to the Treasury, said the UK has "huge potential" for growth but that this requires "fiscal discipline", and that the government remains committed to its fiscal rules "with a buffer against uncertainty".