Chancellor's balancing act: cost-of-living relief versus the markets

The chancellor was on an early flight to north-east Scotland on Wednesday to announce fresh North Sea energy approvals as the last set of major economic figures landed, and from a mile high as much as close up they set out his Budget balancing act in clear terms.

National debt has topped £3 trillion for the first time in the official figures. The headline rate of inflation has reached 3.5% and is surely heading back to 4% in the coming months. Borrowing is running ahead of forecasts as spending and interest costs increase.

Together they show the constraints on John Healey as he puts the finishing touches to his statement next week. On the one hand he says he wants to give "breathing space" to consumers once again feeling the heat from cost-of-living pressures. The public finances, however, remain under strain from the double blow of rising inflation and borrowing costs.

Inflation was expected to increase as petrol and diesel prices surged, in some cases to records. But other measures of underlying inflation also rose. From airfares to the price of computer game downloads, there are the first signs of stickier price pressure and of higher inflation becoming more embedded, suggesting elevated price rises are not temporary. Capital Economics now expects the main measure to peak at 4.2% next year.

The Bank of England watches services inflation and core inflation closely, and the figures significantly raise the odds of an interest rate rise next month. Services, which span everything from law and banking to retail, hospitality and tourism, make up the vast majority of the UK's economic output.

The latest inflation figure also determines the uprating of tens of billions in welfare payments next April. By law, benefits such as personal independence payment and carer's allowance must rise in line with September's consumer price index. The figure also confirms that the triple lock will lift the state pension by 3.9% next April. One source of relief: food price inflation remains largely unaffected by the energy shock.

Higher inflation at a time of frozen tax thresholds will raise more tax in cash terms, but it will also increase the cost of public services, including likely union pay demands. All the while, UK borrowing costs have risen alongside most of the advanced world as the US-Israel war against Iran has intensified.

The Jackdaw gas field decision is seen as the start of a run of "pro-growth" pre-Budget announcements. It sends a directional message, but will not fundamentally change the trade-off between cost-of-living breathing space and delivering a Budget that convinces the markets and investors.

The fact that the borrowing costs gap has narrowed a little with other G7 nations, and that the IMF praised pencilled-in plans to shrink borrowing, provided a platform for the chancellor's Budget. The latest economic numbers amply illustrate the challenge of actually delivering them.