UK on Thin Ice Ahead of Autumn Budget Warns Former Bank of England Chief

The U.K. is facing a precarious fiscal situation ahead of its Autumn Budget on October 28, according to Andy Haldane, former chief economist of the Bank of England. In an interview with CNBC, Haldane warned that the government is "skating on pretty thin ice" and must act to curb public spending to appease financial markets. He emphasized that the government must demonstrate its willingness to "take the knife to public spending" to avoid a potential crisis.

Haldane highlighted that the U.K. has the highest government borrowing costs in the G7, exacerbated by domestic and global instability. He noted that the country's higher and stickier inflation, lower growth, and unbalanced books this century make the fiscal situation particularly fragile. The former Bank of England economist praised Prime Minister Andy Burnham's move to end the triple lock mechanism for state pensions but cautioned that welfare remains a sensitive issue for both the Labour party and bond markets.

The upcoming budget, the first under Burnham's administration, will be critical in addressing public spending and borrowing. Finance minister John Healey has emphasized the need to create a fiscal "buffer against uncertainty," but the government also aims to ease living costs, devolve political power, and raise defense spending. Haldane warned against targeting businesses with new taxes, noting that the private sector feels overtaxed and that excessive borrowing could hinder growth.

Haldane also criticized the current government for lacking sufficient economic and financial expertise. Despite these challenges, Burnham has refused to rule out tax hikes, with reports suggesting potential windfall taxes on banks. Lenders, including JP Morgan, have lobbied against such measures, adding another layer of complexity to the budget planning.