Borrowing surge puts pressure on chancellor ahead of Budget

The government borrowed more than expected in August, as persistently higher inflation pushed up overall spending.

Borrowing - the difference between tax receipts and government spending - was £18.3bn in August, almost a fifth higher than the year before, the Office for National Statistics (ONS) said.

It means the government is borrowing more than official forecasters expected, adding to pressure on Chancellor John Healey as he prepares to deliver his first Budget on 28 October.

Inflation rose to its highest rate in five months in August in the UK, driven up by higher petrol and diesel prices.

Although tax receipts were higher in August compared with a year ago, spending on public services, benefits, and other costs grew more as the pace of price rises increased.

The interest the government is paying on its debt rose to £8.8bn, its highest August level since records began in 1997.

The Institute for Fiscal Studies (IFS) warned that spending on debt interest is "a worryingly large share of overall government spending and has been pushed up" since the last official forecasts from the Office for Budget Responsibility (OBR).

Research economist Nick Ridpath said: "Both higher borrowing costs and higher inflation make life harder for a chancellor who is looking to bring down borrowing and to spend more on government priorities."