These figures show the enormity of the next PM’s task

Next week we will have a new prime minister (again), but the economic problems facing the country will remain the same. This morning’s update from the Office of National Statistics shows public sector net borrowing was  £20 billion last month: the second-highest borrowing September record and significantly higher than the Office for Budget Responsibility’s last forecast, which put the figure close to £15 billion.

Economists thought borrowing would rise, but even the consensus (roughly £17 billion) was lower than what the government borrowed in practice. While total borrowing for the financial year is slightly below the OBR’s forecast, it is unlikely to stay that way. The Energy Price Guarantee from October is currently estimated to cost the government an additional £10 billion per month. Capital Economics estimates this morning that borrowing for 2022-23 will be around £210 billion — more than double the OBR’s forecast of £99 billion.

Meanwhile debt interest payments are already well above the OBR’s forecast. Costs rose to £7.7 billion last month, the highest September figures on record, and £2.5 billion more than the same month last year. It’s a reminder that the UK is uniquely exposed to inflation, because so much of its debt is linked to changes in the Retail Price Index. These billions being spent to service the debt don’t buy the government (or the taxpayer) anything new. It’s simply more money needed to service old money borrowed.

It’s this rapid rise in borrowing that the markets have turned on in recent weeks; not just in the UK, but around the world, as investors are making clear that the days of pandemic spending are over, and that governments need to get their books in order. The borrow-and-spend agenda is indeed what landed Liz Truss in hot water over her mini-Budget; a move she could not row back from. It’s this graph above that the next prime minister will have to grapple with, and quickly: it’s likely to shoot up even more next month when the Energy Price Guarantee starts showing up in the figures.

Retail sales figures were released this morning, too. The 1.4 per cent month-on-month fall in September can largely be attributed to the Queen’s funeral, which added a bank holiday to the calendar with usual economic activity slowing during the days of mourning. But the 3 per cent drop in online sales suggests that inflation — back in the double digits last month — is taking its toll.