Burnham Faces Tax Hikes as Bond Yields Spike

UK Prime Minister Andy Burnham is facing a tough challenge in delivering cost of living support without raising taxes, according to economists. The warning comes after a sharp spike in government bond yields, which has deepened problems for the UK's public finances.

The Bank of England has warned that it could hike interest rates as a result of continued trade disruption across the Gulf region, which would add to the £110bn debt interest load currently faced by the government. ITEM Club's Matt Swannell said that current market pricing on bonds would remove about £7bn of the £23.6bn fiscal headroom available under the existing fiscal rules.

Researchers at the Resolution Foundation estimated that the size of fiscal headroom was likely to be even lower than £8bn altogether as the Iran war's effects could still hit output growth. The situation puts Healey in a difficult position ahead of the Budget, with the government under pressure to raise defence spending to three per cent of GDP while also supporting families struggling with rising costs.