John Healey, the UK chancellor, is due to deliver the Labour government’s first budget on Oct. 28.
Growth Has Outrun Forecasts, While Inflation Rises
UK output grew 0.6% in the first quarter and 0.5% in the second, making it the fastest-growing G7 economy so far that year. Growth in the third quarter was heading for 0.6% to 0.8%. The first eight months produced the fastest growth for that span since 2017, excluding the post-lockdown reopening. Each quarter’s growth was twice the Office for Budget Responsibility’s March forecast and independent forecasters’ predictions.¹
The inflation rate rose to 3.5% in September, and typical energy bills were predicted to rise by 16% in January. The UK is more resilient than it was in 2022. The link between gas and electricity prices has weakened, so spikes in gas prices have less effect on electricity bills than before. The Iran war had so far been more of an oil shock than a gas shock, while the UK is more exposed to gas shocks.¹
Spending Plans Face Inflation And Defence Costs
Chancellor John Healey must find £35 billion to meet the Labour government’s spending ambitions. Last year’s spending review implied a £9 billion cut for departments outside health and defence. Inflation threatens to add another £15 billion hole in those plans. The government’s suggested aim of raising defence spending to 3% of GDP by 2030 carries a further £11 billion cost.¹²
The budget is also being planned to give households and businesses “breathing space” after two earlier budgets added £66 billion in taxes and borrowing rose.¹²
The Institute for Fiscal Studies director Helen Miller said tax rises are needed to increase spending without squeezing public services. One measure being considered would lower the threshold for the annual mansion tax on high-value homes from £2 million to £1.5 million. The budget is also being planned to give households and businesses “breathing space” after two earlier budgets added £66 billion in taxes and borrowing rose.¹²
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Read More →Fiscal Headroom Depends On Uncertain Estimates
The chancellor’s cushion against his fiscal rules has fallen to £21 billion. Investors have signalled that they would tolerate headroom—the margin available against those rules—as low as £15 billion. Earlier estimates from economists suggested the government’s headroom against its main rule would halve. That rule requires taxes to cover day-to-day spending in 2029-30. Miller stressed that the estimates carried huge uncertainty and could be higher or lower.¹²
The Institute for Fiscal Studies warned ahead of the budget, and it worked with Barclays Plc on its annual Green Budget analysis of current economic challenges. The two organisations said a £12 billion hit from higher borrowing costs and £10 billion in extra welfare spending, reflecting inflation-linked benefits, would be almost entirely offset by additional tax receipts from inflation and higher wages.¹²
Markets Improve, While Budget Planning Stays Tightly Controlled
The Ukraine war, energy bailouts and the mini-budget culminated in the UK facing the G7’s highest borrowing costs. Borrowing costs then rose more than in any other G7 country last year amid repeated policy reversals. The International Monetary Fund endorsed the UK for standing out among G7 countries for planning to cut borrowing. Jack Meaning, Barclays chief UK economist, said the market backdrop for the budget was better than in the previous two years.¹²
Chancellor John Healey named keeping trade moving with international partners, supporting families and businesses, and strengthening Britain’s economy as priorities.
Chancellor John Healey named keeping trade moving with international partners, supporting families and businesses, and strengthening Britain’s economy as priorities. He described fiscal discipline as part of his budget approach to economic resilience. He also said he and the prime minister were in lockstep on balancing the books, controlling public spending and meeting the fiscal rules with a buffer.¹²
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Read More →The budget has been divided into compartments, with very few people given access to all of them. Ministers who view the plans have to sign a digital promise not to brief the media. Chancellor John Healey, a former defence secretary, has embraced strict procedures. He spoke at the Manufacturing Technology Centre in Coventry last month.¹²
Advice given on entering Downing Street was that greater consumer confidence could lead households to save less and spend more, helping growth. The policies described alongside that approach include capped bus fares and a temporary VAT cut on household energy bills. They were characterized as relatively inexpensive “feel-better” measures.¹²
Budget signals where jobs and pay move
The UK budget on Oct. 28 tightens the fiscal picture for your next pay conversation. Inflation at 3.5% in September and a predicted 16% rise in typical energy bills in January mean your real income shrinks unless you negotiate for more. The chancellor must find £35 billion, and last year's review implied a £9 billion cut for departments outside health and defence. If you work in or target those departments, expect tighter budgets and fewer openings. Ask for raises that at least match inflation, and factor in higher energy costs when evaluating any offer.¹²
Defence is the standout area to weigh. Raising defence spending to 3% of GDP by 2030 carries an £11 billion cost, signalling sustained government priority there. With the UK growing 0.6% in Q1 and 0.5% in Q2, the economy is not collapsing, but fiscal discipline means tax rises are likely, including a possible mansion tax threshold cut from £2 million to £1.5 million. If you are choosing a role, defence-related engineering, manufacturing, or policy work offers more stable funding than other public sectors. Plan for higher taxes on high-value assets if you own property.¹²
If you work in or target those departments, expect tighter budgets and fewer openings.
Sources
Written by Career Ahead AI. AI can make mistakes, so verify key facts. Report errors to support@careeraheadonline.com
