Analysts believe recent increases in yields have wiped out more than half of the \u00a324bn \u201cheadroom\u201d against the rules that the former chancellor Rachel Reeves had built up at the time of the spring statement in March.<\/p>\n
Healey, her successor, has repeatedly promised to meet the rules with a \u201cbuffer against uncertainty\u201d but this is widely expected to be significantly lower than \u00a324bn.<\/p>\n
Rebuilding it to that level would be likely to require large tax increases or spending cuts; but Treasury sources insist the budget will be \u201cfocused\u201d, with important spending decisions postponed to a review next year.<\/p>\n
Investors across the main markets have been ditching bonds in recent weeks<\/a> in a wave of selling prompted by fears of higher inflation and interest rates as the conflict in the Middle East rumbles on.<\/p>\n The Bank of England chief economist, Clare Lombardelli, said in a speech on Thursday that the longer oil prices remained elevated as a result of the war, the more likely it was that UK interest rates would have to rise.<\/p>\n \u201cThe longer higher energy prices persist, the greater the risk that indirect effects build and that inflation expectations, wage bargaining and price-setting behaviour begin to adjust in response,\u201d she told an economic conference in Warsaw, Poland.<\/p>\n \u201cOn that basis, policy is increasingly likely to need to tighten if elevated energy prices persist, absent clear evidence of disinflation or weaker activity.\u201d<\/p>\n Higher rates would mean increased mortgage costs for homeowners, at a time when Andy Burnham\u2019s government has promised to offer consumers a \u201cbreathing space\u201d against the rising cost of living.<\/p>\n
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