Budget 2026: The two big decisions Chancellor John Healey must make
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Faisal Islam: The two big decisions the chancellor must make
Image source: AFP via Getty Images
By Faisal Islam, Economics editor
Published 9 hours ago
"It is tough," John Healey admitted to me earlier this month when I asked him if there had been too much doom-mongering?
"Conflicts, uncertainty, driving up inflation, driving up interest rates. But we've got great strengths. We've got good reasons to be confident about the future of Britain," he insisted.
The new scheme to try and help young people get on the property ladder, announced on Saturday, was aimed at boosting confidence in the economy.
But the chancellor is now facing two big decisions before his inaugural Budget on 28 October.
Firstly, about the longevity of the economic pressures caused by the Iran War.
In his first weeks as chancellor the oil price fell as low as $75 a barrel while the yield - the effective interest rate - on 10-year government bonds was 4.9%. Just over two months later oil has largely traded above $100 and the 10-year yield is at around 5.4%. It is the ultimate double whammy for a chancellor facing his first Budget.
Secondly, how to sustain a modest but notable uptick in economic spirits, through yet more global turbulence.
One option is to let borrowing take some of the strain, by tolerating a reduction in the £24bn of headroom - room for manoeuvre against its self-imposed borrowing rules - left by his predecessor, Rachel Reeves. This year's headroom will be judged in three years rather than four, so there is some rationale as to why a smaller number over a closer target might be appropriate. And while higher inflation means higher interest costs, it also means higher cash tax receipts, at a time when thresholds continue to be frozen.
There is also a second consideration. The hopeful optimism "vibes" strategy of the Burnham administration appears to have had some impact. The longest running UK consumer confidence survey has hit a two-year high. Among younger people it has not been this high since before Brexit. Some data companies call it a "Burnham bounce", although the weather and World Cup were also factors.
There are two paths ahead. Does the chancellor buy some time, or plan for the worst?