John Healey has warned that the UK is heading towards a “really challenging” autumn Budget as higher borrowing costs and elevated interest rates put pressure on the government’s finances.
The Chancellor’s warning comes as ministers face a narrower fiscal margin ahead of the October 28 Budget, with the government also contending with renewed inflationary pressures and the economic consequences of conflicts in the Middle East and eastern Europe.
Healey had previously set out a £24bn margin with which to manage the public finances, although sources close to the government said that headroom has subsequently narrowed considerably.
One Labour ally told the Financial Times: “This is a really challenging Budget.”
Another source pointed to developments in the Middle East and Ukraine, saying: “Both of these fronts are having a significant impact on the economy.
“John knows this better than anyone with his international outlook from defence and is using it as a basis for some early thinking into the Budget.”
The comments come as the UK faces renewed inflationary pressure. The Office for National Statistics reported that consumer price inflation rose to 3.1 per cent in the 12 months to August, up from 2.9 per cent in July. Transport, particularly motor fuels, made the largest upward contribution to the monthly change in inflation.
Higher inflation complicates the government’s fiscal position because it can constrain the room for monetary policy to ease borrowing conditions while increasing pressure on household and business costs.
The government is also facing scrutiny over its approach to the Bank of England. Healey this week confirmed the appointment of Paul Nowak, general secretary of the Trades Union Congress, to the Bank’s Court of Directors for a four-year term ending in August 2030. The Bank said the appointment followed a fair and open competition and noted that Nowak had not engaged in party political activity during the previous five years.
The Conservatives criticised the appointment, with Shadow Chancellor Andrew Griffith saying: “The last thing our country needs is a trade union leader helping to run the Bank of England.”
The Bank’s Court acts as its board, overseeing strategy, governance, its budget and risk framework, although monetary policy itself is determined by the independent Monetary Policy Committee.
For Healey, the Budget will therefore come at a particularly sensitive point for the economy. Higher borrowing costs, persistent inflation and geopolitical instability are narrowing the scope for fiscal decisions while increasing pressure to demonstrate control over the public finances.
The Chancellor is due to deliver his Budget statement on October 28.
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