Healey's Budget must sustain stronger UK economy

Chancellor John Healey is preparing a UK government Budget, with the final statement and economic forecast expected around 13:00 in the House of Commons. The document has been divided into tightly controlled compartments, according to aides, with codenames, locked-down IT and a digital promise for ministers not to brief the media.

The security steps are meant to prevent the kind of speculation that was blamed for unsettling markets before the last Budget. Healey, a former defence secretary, has taken a cautious approach, including avoiding breaches of the previous Budget’s closely guarded approach.

The economy has so far defied gloomy forecasts. The UK was the fastest-growing G7 economy this year, with growth of 0.6% in the first quarter and 0.5% in the second. Independent forecasts and the Office for Budget Responsibility had expected weaker performance, but the third quarter was heading towards 0.6% to 0.8%. The IMF has noted the UK’s position among G7 countries over plans to cut borrowing.

Still, the outlook is not without clouds. Inflation rose to 3.5% in September and borrowing figures were higher than expected, raising the likelihood of a Bank of England rate rise and pressure on mortgage repayments. The bond market’s attention has shifted away from UK borrowing and towards the gap between French and German borrowing costs, as well as America’s long-term debt outlook.

Healey's challenge is to sustain growth, meet backbench demands for cost-of-living support and reassure markets that borrowing will remain under control. He has promised fiscal discipline and public spending controls. The final Budget and the Office for Budget Responsibility forecast, due alongside it, will be watched closely.

The government has pointed to measures such as capped bus fares and a temporary VAT cut on household energy bills to improve confidence without sharply increasing spending. There is limited spare money, however. The chancellor has said he will take on challenges left by former Chancellor Rachel Reeves and must balance the books while meeting fiscal rules with a buffer.

The final judgement may depend on whether the Budget reassures markets or Parliament. The chancellor will seek to stress the resilience of the UK economy and spread growth more widely, while balancing support for the economy against the risk of still-elevated borrowing costs. He may offer breathing space for households and for the Exchequer.

Source: BBC Business