A long-running measure of consumer confidence has slumped to levels last seen at the start of the year following warnings of “tough choices” ahead in the looming budget.

GfK’s Consumer Confidence Index fell seven points in September to minus 20, with significant drops in predictions for personal finances and the general economy over the coming year.

The report’s authors suggested it was “not encouraging news” for the new government, which has made growing the economy its top priority.

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But within weeks of taking the post of chancellor, Rachel Reeves – followed by prime minister Sir Keir Starmer – moved to warn of a legacy £22bn “black hole” in the public finances and said it would result in a painful budget on 30 October.

Among measures already taken include cuts to winter fuel payments, leaving up to 10 million pensioners up to £300 worse off, and inflation-busting public sector pay settlements.

Tax rises and spending cuts are widely expected in next month’s statement to MPs though The Times reported on Friday that a decision by the Bank of England to slow a programme of loss-making bond sales would leave Ms Reeves £10bn better off than she had anticipated.

It added that she was still expected to push forward with her budget plans anyway as a signal of her commitment to fiscal discipline.

The latest snapshot on the public finances, released by the Office for National Statistics (ONS) on Friday showed net borrowing of £13.7bn during August.

Its chief economist, Grant Fitzner, said: “Borrowing was up by over £3bn last month on 2023’s figure, and was the third highest August borrowing on record.

“Central government tax receipts grew strongly, but this was outweighed by higher expenditure, largely driven by benefits uprating and higher spending on public services due to increased running costs and pay.”

Consumer spending accounts for around 60% of the UK economy.

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Data released separately on Friday showed a 1% rise in retail sales volumes during August in the wake of weakness, mostly blamed on poor weather, over the previous couple of months.

The ONS said that the increase was driven by supermarket sales, as demand for BBQ food and drinks rose due to the arrival of some sunshine over the key holiday month.

It also credited discounting by clothing retailers.

The data chimes with the latest updates from big retailers, including Next and B&Q’s owner, which have spoken of weak demand for so-called big ticket items such as home furnishings and kitchens respectively.

GfK’s closely-watched survey showed expectations for the general economy over the next 12 months fell by 12 points to -27, while the forecast for personal finances was down nine points to -3.

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Commenting on its key measures, including the headline figure, consumer insights director at GfK Neil Bellamy said: “These three measures are key forward-looking indicators so despite stable inflation and the prospect of further cuts in the base interest rate, this is not encouraging news for the UK’s new government.”

He added: “Strong consumer confidence matters because it underpins economic growth and is a significant driver of shoppers’ willingness to spend.

“Following the withdrawal of the winter fuel payments, and clear warnings of further difficult decisions to come on tax, spending and welfare, consumers are nervously awaiting the budget decisions on October 30.”

Thousands of construction industry jobs are at risk as ISG, a construction group which builds prisons and police stations, faces imminent collapse.

Sky News has learnt that Whitehall officials are lining up City advisers to work on contingency plans for ISG, which is expected to formally appoint administrators on Friday.

EY is on standby to handle the insolvency proceedings.

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Construction industry sources said that government officials were closely monitoring the crisis at ISG, which is expected to be the biggest casualty in the sector since Carillion collapsed in 2018.

ISG employs about 2400 people and counts Apple, Barclays and Google among its private sector clients in the UK.

It is also understood to be involved in construction projects for leading City law firms including Addleshaw Goddard.

One insider said that EY would be appointed as administrator to eight ISG entities, including ISG Central Services and ISG Interior Services.

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The accountancy firm is said to have been scrambling to find a buyer for the company after a South African bidder pulled out of talks several days ago.

ISG is owned by Cathexis, a Texan-based investor.

EY and the Cabinet Office declined to comment.

The UK’s public sector debt has hit 100% of the value of the country’s annual economic output for the first time since the 1960s, according to official figures released ahead of the chancellor’s maiden budget.

The Office for National Statistics (ONS) said, in a preliminary estimate, that the figure had risen from the 99.3% figure recorded the previous month.

Wider data revealed by the number crunchers showed that the government borrowed £13.7bn in August, up by £2bn on the figure expected by the Office for Budget Responsibility (OBR).

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It meant that borrowing for the current financial year, at £64.1bn, was £6bn higher than the OBR had forecast.

ONS chief economist Grant Fitzner said: “Borrowing was up by over £3bn last month on 2023’s figure, and was the third highest August borrowing on record.

“Central government tax receipts grew strongly, but this was outweighed by higher expenditure, largely driven by benefits uprating and higher spending on public services due to increased running costs and pay.”

The official figures were released against a backdrop of spending cuts, including the removal of universal winter fuel payments to pensioners, and public sector pay settlements to end strike action ahead of Chancellor Rachel Reeves’ first budget on 30 October.

Along with the prime minister, she has warned of tough choices ahead to fill what they call a £22bn black hole in the public finances left behind by the Conservatives.

News that government debt hit 100% of economic output for the first time in decades only intensifies the challenge facing Ms Reeves and her Treasury team at a time when economic growth has slowed, with consumer confidence said to be suffering due to warnings of tough budget choices ahead.

The Times reported that a decision by the Bank of England to slow its sale of financial crisis-era bonds would provide a £10bn boost to her coffers through lower losses, but added that she was determined to double down on a course of fiscal discipline despite intense pressure to overturn the winter fuel payment decision.

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Chief Secretary to the Treasury Darren Jones said: “When we came into office, we inherited an economy that wasn’t working for working people.

“Today’s data shows the highest August borrowing on record outside the pandemic. Debt is 100% of GDP, the highest level since the 1960s.

“Because of the £22bn black hole in our public finances we have inherited this year alone, we are taking the tough decisions now to fix the foundations of our economy, so we can rebuild Britain and make every part of the country better off.”

Ms Reeves has warned taxes will go up in the budget, though she has ruled out increases in rates of income, corporation and value-added taxes due to the party’s election promises not to tax “working people”.

Inheritance and capital gains taxes could be in the firing line and there is also speculation that falling fuel costs will allow her to overturn the 5p-per-litre fuel duty cut introduced by Rishi Sunak at the height of the cost of living crisis.

John O’Connell, chief executive of the TaxPayers’ Alliance, said of the milestone: “Taxpayers will be hoping that this will be a wake up call for Rachel Reeves ahead of the budget.

“With the debt now matching the size of the economy, this needs to be a watershed moment for all politicians, but particularly the chancellor, to recognise that the situation is unsustainable.

“Getting a grip of the national debt should now be a top priority for the government, with future generations set to be hit hard if it follows the big spending philosophy of its predecessors.”