UK Prime Minister Warns of Tough Budget Decisions After Inflation Rise

Andy Burnham warned that the Budget could involve “difficult decisions” after bleak new figures showed inflation had risen.

The PM blamed turmoil in the Middle East, while insisting that the UK economy was still “resilient”.

He said the risk of accelerating prices would be “fully taken into account” in the Chancellor’s package next month.

However, he struggled when challenged over criticism from former ally Andy Haldane about the Government’s apparent lack of commitment to restraining spending.

The former Bank of England chief economist said last night that he was disappointed, telling LBC that markets increasingly fear “this is a traditional tax-and-spend socialist government with better Tiktok videos”.

Speaking during a visit to Woking this morning, Mr Burnham said: “That doesn’t tell the story. I mean, we are not that.

“Already, I have taken difficult decisions in this job in relation to reprioritising Government spending, putting digital ID on hold for instance, so it’s not the case that we aren’t going to take difficult decisions.

‘We will take difficult decisions to make sure the economy remains on track.’

The premier said Chancellor John Healey would exercise the ‘highest degree of prudence’ on the economy.

He said: ‘It is going to be challenging, because the picture around the world is challenging, particularly the situation in the Middle East, and we will look carefully at all those things.

‘We won’t take risks with people’s living standards or with the economy as a whole, so we will take it all into account.

‘It’s why we wanted to do an earlier Budget, we didn’t want to leave a long period of speculation, I think that’s been shown now to be the right decision and it will mean taking whatever action we can to help people while also making sure we apply the highest degree of prudence to the running of the economy.’

Mr Healey’s funding ‘headroom’ for the Budget has been shrinking as markets ratchet up interest rates on Government debt. Although the issues are global, the UK is seen as particularly vulnerable to shifts. 

Some believe the Chancellor will need to find £10billion of tax rises or spending cuts to balance the books, with the situation deteriorating daily. 

Official figures released this morning showed headline CPI inflation was 3.1 per cent in the year to August, up from 2.9 per cent the previous month.

The bump was in line with expectations, but economists have been warning that could be only the start. 

Oil costs have been running at eye-watering levels, with Brent Crude at $108 a barrel this morning. Drivers are already feeling the pinch at the pumps, where diesel is at a four-year high.

There are estimates that energy bills could be set to rise by a quarter in January, while the Government is struggling to find ways of balancing the books at the Budget next month. 

Some analysts believe CPI will now hit 4 per cent next year, with markets pricing in multiple interest rate increases as the Bank of England fights to prevent a spiral.

The Monetary Policy Committee – which targets 2 per cent inflation – will make its latest decision on rates tomorrow, although it is widely predicted to hold them at 3.75 per cent this time.  

Mr Haldane was among the high-profile economists Mr Burnham turned to for advice before seizing power as he sought to win fiscal credibility with markets. 

But he gave a stark warning last night that bond market investors would continue to drive up borrowing costs unless there are cuts to spending.

‘The fiscal Achilles’ heel of this government, thus far, has been its unwillingness and/or inability to cut public spending,’ he told LBC.

With UK bond yields at 28-year highs ahead of next month’s Budget, Mr Haldane added ‘a few hard choices are looming on the horizon’.