Chancellor John Healey confronts £3 trillion debt and rising inflation

The chancellor, John Healey, flew to North East Scotland on Wednesday to unveil new North Sea energy approvals just as the latest inflation and public‑finance figures were published. The data show the national debt has risen above £3 trillion for the first time, headline inflation is at 3.5 % and expected to climb toward 4 %, and borrowing is running ahead of forecasts as spending and interest costs increase. Those numbers lay out the balancing act the chancellor faces as he finalises his Budget statement for next week.

The pressure comes at a time when households are still feeling the heat of rising living costs. Petrol and diesel prices have surged, pushing core inflation higher, while prices for air‑fares, computer‑game downloads and other services are also climbing. Capital Economics now expects the main inflation measure to peak at 4.2 % next year, and the Bank of England is watching services and core inflation closely, raising the odds of an interest‑rate hike next month. By law, benefits such as the State Pension, personal independence payment and carer’s allowance must rise with the September CPI, meaning the Triple Lock will lift the pension by 3.9 % in April. Food‑price inflation remains relatively unchanged, but higher overall inflation will increase tax receipts and the cost of public services, adding to union pay‑rise demands.

Healey says he wants to give “breathing space” to consumers, yet the combination of rising inflation, higher borrowing costs and a tightening fiscal backdrop limits his options. The Jackdaw gas field decision, announced as a “pro‑growth” move before the Budget, signals a directional shift but does not resolve the trade‑off between easing cost‑of‑living pressures and delivering a budget that satisfies markets. Borrowing costs have risen in line with other G7 nations, though the gap has narrowed, and the IMF has praised the chancellor’s tentative plans to curb borrowing. With the Budget due next week, the chancellor must reconcile these constraints, manage expectations on welfare uprating, and navigate the likelihood of higher interest rates that could shape the UK’s economic outlook for months to come.