Mindful of the markets, UK's Healey is set to deliver a careful budget

Summary Healey to announce his first budget on Wednesday Iran war has pushed up borrowing costs worldwide PM Burnham has acknowledged the need for fiscal stability Big spending decisions are not expected until 2027 LONDON, Oct 26 (Reuters) - British finance minister John Healey looks set to announce a cautious first budget this ​week, prioritising stability in the bond market over the kind of big spending moves that Andy Burnham talked about when ‌he became prime minister.

When Healey stands up in parliament on Wednesday, he is likely to offer some help to households facing another rise in energy bills and he has hinted that businesses will get "breathing space" from rising costs. Sign up here. But against a backdrop of the US-Israeli war on Iran , which has driven up inflation and taken government bond yields worldwide ​to multi-decade highs, the former trade union official knows he cannot repeat the big spending and tax-raising budgets of his predecessor Rachel ​Reeves.

"If they decide to ramp up spending more than what we're taking in, in a really fiscally tenuous situation, ⁠that would be what the market doesn't want to hear," Bryn Jones, head of fixed income at wealth manager Rathbones, said. INVESTORS' FOCUS IS ELSEWHERE Investors ​have recently been less alarmed by the state of Britain's public finances than they are by those of France , Italy and the US. But four years after ​a bond market meltdown under former Prime Minister Liz Truss, British gilt yields are still the highest among the Group of Seven rich industrialised nations.

Burnham once spoke of his frustration at "being in hock to the bond market" and he promised change when he moved into Downing Street in July. But since then he has told investors that ​he understands the reality of the public finances. "Some might say that Burnham is very much in hock to the bond market at the moment," ​Allan Monks, a senior economist at J.P.Morgan, said. The new prime minister's big ambitions - including an increase in public housebuilding, taking defence spending to 3% of economic output ‌and greater ⁠state ownership of public services - will probably be delayed.

Chancellor of the Exchequer John Healey speaks at the Labour Party's annual conference in Liverpool, Britain, September 28, 2026. REUTERS/Temilade Adelaja Purchase Licensing Rights , opens new tab Analysts also expect a decision on whether to increase spending to offset the impact of higher inflation on government departments to be postponed. Still, Healey's margin for error in hitting his fiscal targets will be narrow. Britain's public debt hit £3 trillion ($4 trillion) for the first time in September and the cost of servicing it has risen.

Healey - who earlier this year quit as former Prime Minister Keir Starmer's defence minister in a row ​over funding - may try to cover ​a near-term shortfall in Britain's ⁠spending plans for the armed forces. The main tax-raising measure in the budget is expected to be an increase in a levy on the profits of banks . The Treasury has already announced some other measures, including more than £20 billion extra ​in support for investment in artificial intelligence, defence and green energy over a roughly five-year period.

It has said mayors ​in England will ⁠be given new funding and powers under a push for more devolution, while around £600 million will be allocated to defend against health and security threats from artificial intelligence. Analysts expect the big decisions of the Burnham government will have to wait for an official spending review next year by which time the conflict in ⁠the Gulf ​may have eased, bringing down borrowing costs. A reset of Britain post-Brexit ties with the European Union ​following a UK-EU summit in November might also have improved the outlook by then.

"This budget will largely be a stopgap that will tide the government over before a more significant ​policy overhaul in 2027," Alexander Harvey, UK economist at Oxford Economics, said. ($1 = 0.7478 pounds) Additional reporting by Dhara Ranasinghe Writing by William Schomberg; editing by Barbara Lewis Our Standards: The Thomson Reuters Trust Principles. , opens new tab Suggested Topics: United Kingdom X Facebook Linkedin Email Link Purchase Licensing Rights William Schomberg Thomson Reuters William has travelled the world for Reuters, working in bureaus from Rio de Janeiro and New York to Brussels and Milan.

He has spent the last 12 years back in London, covering UK economics by day and rediscovering his home city by night, especially its out-of-the-way pubs and jazz clubs. Email X Instagram Linkedin