Chancellor John Healey will attempt to reassure jittery financial markets on Monday when he sets out Labour’s plans for economic growth in his first major speech since taking charge of the Treasury.
The address comes as rising government borrowing costs threaten to squeeze the room for manoeuvre ahead of the Government’s first Budget on October 28. Investors have been selling bonds amid concerns over inflation, public spending and the wider global economic outlook.
Healey is expected to stress that fiscal discipline remains central to the Government’s approach, while presenting growth as the route to stronger public finances and higher living standards.
The speech will be closely watched in the City after the yield on 10-year government borrowing reached its highest level since 2008 earlier this week, increasing the cost of servicing Britain’s debt.
Higher borrowing costs could significantly reduce the estimated £24 billion of headroom inherited from former chancellor Rachel Reeves’ March statement. Economists have warned that Healey may need to consider tax rises, spending restraint or both if he is to remain within Labour’s fiscal rules.
The pressure has been intensified by international events, with the conflict in the Middle East pushing up oil prices and adding to inflation concerns. Healey has said the turmoil is affecting inflation, growth and borrowing costs, and that Britain needs a buffer against further uncertainty.
He has also indicated that the October Budget will be difficult, while insisting that he and Prime Minister Andy Burnham are united in their determination to meet the fiscal rules. The Government has pledged to ease pressure on households while protecting its wider economic commitments.
The chancellor faces competing demands to fund public services, strengthen defence and address the cost of living without undermining investor confidence. He has separately backed efforts to reduce welfare spending and help more people return to work.
Monday’s speech, first reported as a major address by Reuters citing Politico, will be delivered less than six months after Reeves outlined her own economic strategy to City and business leaders.
