At face value it was a complete disaster. In August, the UK government borrowed more money than ever before. But actually, drill down, and the picture wasn’t quite so bad. But what is absolutely fascinating is why the deficit rose so high in the first place.

In August net borrowing excluding the temporary effects of financial interventions was £15.9 billion (£15.3 billion including interventions).

As Travelex put it: “Most economists had predicted the figure would come in at £12.51 billion.”

And yet up until August, things had been looking rather good. And even after taking into account the August data, the cumulative borrowing for the year is £58.1bn, £4bn short of last year’s equivalent figure.

Duncan Higgins, Senior Analyst at Caxton FX, put it this way: “The figure is certainly disappointing, particularly amid the government’s efforts to curb spending. However, being August’s data, the fiscal austerity measures have not yet fed through to expenditure and the real test of borrowing levels will come later in the year. Ahead of October’s spending review there is also cause for the government to be upbeat. On an annualised basis borrowing levels are still below target and with cuts already in the pipeline that target should hold.”

But then again, August was a bad month. As Capital Economics said: “If borrowing continues on its current path, then the annual total will more likely be closer to last year’s figure of £155bn than the Office for Budget Responsibility’s forecast of £149bn.”

But what is interesting is why the lending shot up. Much of the UK’s existing debt is funded by bonds that are linked to the rate of inflation. If inflation goes up, then so too do the interest payments. The last few months have been bad for inflation, and this in turn has led to a rise in payments on bonds, which in turn pushed up borrowing. In other words, it was the interest payments on debt that went up thanks to inflation, that caused the August borrowing figures to surge.

Those who reckon the UK government will inflate its way out of debt, and that hyperinflation is inevitable as a means of clearing our debts, should bear this in mind. As the August data shows, inflation is bad, not good, for fiscal debt.