Hello and welcome to the details of UK budget tests new PM as Iran war fuels inflation and defence spending pressures and now with the details
Nevin Al Sukari - Sana'a - Britain’s Prime Minister Andy Burnham meets with Britain’s Chancellor of the Exchequer John Healey ahead of the UK budget at 11 Downing Street in London on October 26, 2026. Burnham’s new government unveils its first budget on October 28, testing a commitment to ease the cost of living and ramp up defence spending with little financial room for manoeuvre. — AFP pic
LONDON, Oct 28 — Britain’s finance minister John Healey will unveil his first budget Wednesday, as he juggles commitments to defence spending and easing household bills with little financial room to manoeuvre.
It could prove to be a tall order for Prime Minister Andy Burnham’s new administration as rising inflation and borrowing costs — largely a consequence of the US-Iran war — increase the government’s debt pile and heap pressure on businesses and individuals.
“We can’t stop these shocks that hit Britain, but we can make Britain more resilient when they do,” Healey said in a statement released on the eve of the Labour government’s budget.
“This budget is about getting through this difficult moment,” he said, adding that it would provide “breathing space” for households and “targeted support” for businesses.
Burnham, who replaced Keir Starmer as prime minister in July, said Monday the latest annual tax and spending plans will set out how the government intends to finance the defence investment programme laid out by his predecessor.
Healey is expected to delay until next year details of how Britain will meet Nato’s target of defence spending reaching 3.5 per cent of GDP by 2035.
Healey resigned as defence minister under Starmer, accusing the Treasury of insufficient military funding.
Labour had ruled out rises to income and capital gains tax, raising the prospect of spending cuts to balance the books, according to analysts.
‘Small-scale’ budget
Healey, whose official title is chancellor of the exchequer, has also pledged to abide by the rules laid out by his predecessor Rachel Reeves, which state that day-to-day spending must balance with government tax receipts.
The chancellor is expected to use a windfall tax on banks to fund a package of spending measures to help households manage rising energy bills.
“This budget will largely be a stopgap that will tide the government over before a more significant policy overhaul in 2027,” said Alexander Harvey, UK economist at Oxford Economics.
“The measures will be fairly small-scale ones to ease the cost of living, as well as other relatively low-cost policies,” he added.
Some relatively low-cost relief measures have already been announced, including cuts to tariffs on more than 100 imported goods and an expansion of the parental pay regime.
Further measures could include an extension of a freeze on fuel duty, more targeted help for the poorest households and an increase in the minimum wage, according to reports.
Surging diesel costs at the pump helped push Britain’s annual inflation rate to 3.5 per cent in September, the highest rate for nearly a year.
The government last week approved drilling in a North Sea gas field, claiming the move was aimed at boosting energy security rather than cutting bills.
The budget will also include measures to reduce “pointless paperwork” to lower costs for businesses, according to Healey.
A package of investment in artificial intelligence safety was announced by the Treasury over the weekend, amid growing global concerns over the cyber and biological risks posed by AI.
Surging borrowing costs
The government’s fiscal headroom of £23.6 billion (RM128 billion) is expected to be slashed in an update given alongside the budget, as higher borrowing costs hike the state’s debt repayments.
The Office for Budget Responsibility, an independent financial watchdog, will on Wednesday also publish its latest UK growth and inflation forecasts.
Government bond yields around the world have struck multi-decade highs in recent weeks as wider inflation climbs largely because of energy prices soaring on wars in the Middle East and Ukraine.
Rising inflation has cemented expectations that the Bank of England will hike its benchmark interest rate next month, further pressuring Britons holding loans, including mortgages. — AFP
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