That was widely seen as an attempt to soothe investors after his statement to parliament on Tuesday, in which he made bold promises of more public control of utilities, further interventions on the cost of living and a recommitment to a 3% increase in defence spending.<\/p>\n
While those offers were broadly welcomed by Labour<\/a> MPs, Burnham was criticised by others for inflaming the sell-off. His former economic adviser, Jim O\u2019Neill, said it was the \u201clast thing\u201d the markets needed.<\/p>\n Investors across world markets have been dumping government bonds amid fears about rising inflation, runaway deficits and competing demand for capital from tech companies on a debt-fuelled AI spending spree. The sell-off has driven up yields, or interest rates, including in the UK. At one point on Wednesday, the cost of 10-year borrowing for the government hit its highest level since 2008, at 5.29%, before easing slightly.<\/p>\n That is expected to be costly for Healey when the Office for Budget<\/a> Responsibility draws up its budget forecasts. The independent watchdog bases its projection for bond yields on a snapshot of market interest rates taken several weeks before each budget and that is expected to be about now for Healey\u2019s 28 October statement.<\/p>\n The chancellor has repeatedly stressed that fiscal discipline is the \u201cbedrock\u201d of government policy. He will give a speech on Monday setting out his plans for economic growth \u2013 less than six months after senior City and business figures gathered to hear his predecessor, Rachel Reeves, lay out her approach.<\/p>\n The aftermath of a US strike on Iran\u2019s southern Hormozgan province on Wednesday. The resumption of hostilities has pushed up oil costs and raised inflation expectations. Photograph: Masoud Mohamadi\/Tasnim News\/AFP\/Getty Images<\/p>\n In his first PMQs clash with Kemi Badenoch, Burnham blamed the Conservative leader\u2019s party for leaving the UK vulnerable to market turmoil.<\/p>\n Criticising Burnham\u2019s three-hour statement in the Commons the day before, Badenoch said: \u201cHe did not say no to a single spending request \u2026 And personally, I think it\u2019s delightful that he wants to make everyone happy. But a prime minister needs to be a leader, not a people pleaser.\u201d<\/p>\n Burnham said his budget would \u201cstick to the fiscal rules, but at the same time, we will help reduce cost of living pressure on our constituents\u201d.<\/p>\n Analysts believe higher interest rates on public debt could wipe out up to half of the \u00a324bn headroom<\/a> Rachel Reeves built up against Labour\u2019s fiscal rules.<\/p>\n Government insiders told the Guardian they believed it would be very difficult for Healey to deliver a budget that had less than double-digit headroom, given the signal that would send to bond markets. However, that would leave him with almost no leeway for additional spending. No 10 sources declined to be drawn on what Burnham\u2019s preferred level of headroom would be.<\/p>\n Healey will also have to show how the Treasury intends to fill a funding gap in defence spending and pay for Burnham\u2019s cost of living measures, including the VAT cut on electricity bills.<\/p>\n Helen Miller, the director of the Institute for Fiscal Studies, said: \u201cDebt interest is now one in every \u00a312 the government is spending, so even relatively small changes can add up quite quickly.\u201d<\/p>\n Alongside the narrowing margin for error against the rules, Miller identified two other budget headaches for Healey \u2013 the likely hit to growth forecasts from falling immigration and the demand for more spending on defence.<\/p>\n She said: \u201cIt\u2019s not that any one of these things on their own are the kind of \u2018hit the panic button\u2019 moment, but when you add them all together, they do add real pressure on the government.\u201d<\/p>\n Ruth Curtice, the director of the Resolution Foundation, said febrile markets meant the government would face additional scrutiny over the sustainability of the public finances.<\/p>\n
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