UK Chancellor John Healey is preparing an autumn budget due on 28 October against a backdrop of global market turbulence, higher inflation and sharply elevated government borrowing costs. A Guardian analysis by Richard Partington argues that much of the pressure can be traced to US President Donald Trump’s policies, as well as to the wider economic impact of the US-Israel war on Iran. The analysis says the UK is not fully in control of its destiny, from rising grocery prices to the cost of servicing public debt.
The conflict is lifting inflation and, according to the analysis, has produced one of the most serious shocks to oil and gas prices in the modern era. The resulting financial-market turmoil is increasing debt-servicing costs for governments worldwide, a strain the piece says is compounded by Trump’s fiscal policy and his threats of interference at the US Federal Reserve.
The timing of Healey’s first major speech as chancellor highlighted the domestic exposure. He spoke in Coventry on the same day Jaguar Land Rover, whose headquarters are nearby, announced 4,000 job cuts. The analysis links the cuts to Trump tariff policies weighing on the car industry, and argues that US geopolitical posturing and moves to undermine the post-war Western security consensus are also adding pressure to increase defence spending.
Healey did not directly identify the Atlantic source of the headwinds. Instead, he said that in Britain’s democratic system a minister does not choose the timing or circumstances of an appointment. The analysis notes that the chancellor also sees scope for Labour to take measures to cushion the economy and rebuild confidence.
Some data point to resilience. Britain’s economy grew at a robust pace in July, the analysis says, helped by rapid expansion in artificial intelligence and an unexpected ability to absorb the worst of the Middle East fallout.
The market picture, however, deteriorated sharply last week. A renewed flare-up in the Iran conflict pushed oil to $109 a barrel and triggered a steep selloff in bonds. The yield on 10-year UK gilts rose to almost 5.4%, the highest level in nearly two decades.
That volatility could constrain the budget. The Office for Budget Responsibility may use recent market movements as the basis for its forecast, which would set the limits for Healey’s tax and spending plans. In the spring, the OBR used market conditions over the 10 working days to 30 January for Rachel Reeves’s spring statement, leaving roughly a month before her 3 March Commons speech. Healey has just over six weeks before the 28 October budget.
If current market conditions are used, Oxford Economics analysts estimate that the £23.6bn of headroom against the main fiscal rule left by Reeves in March could be halved. The OBR has sometimes taken a flexible approach during volatile periods, and the forecast also depends on growth, inflation, the labour market and immigration. The risk, the analysis says, is that the bond-market selloff would make the fiscal arithmetic significantly harder amid multiple spending pressures facing Labour.
This week could add further pressure. Official figures due Tuesday are expected to show a further slowdown in the jobs market, including weaker wage growth and higher unemployment. Inflation data due Wednesday are predicted to show the headline rate rising above 3% in August, renewing the squeeze on living standards. The Bank of England’s interest-rate decision on Thursday is expected to keep borrowing costs on hold, according to the City, adding to the sense that the UK lacks full control over its economic outlook.
The analysis also suggests the government may defer some of Andy Burnham’s major fiscal decisions to next year’s comprehensive spending review, particularly on social care, welfare and defence spending. That would allow more time to address complex issues and avoid an expansive budget in the middle of a global storm. It concludes that the old warning that American economic shocks spread to the rest of the world has renewed relevance.
