Burnham Faces £24 Billion Squeeze From UK Inflation, NIESR Says

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Or sign-in if you have an account.0jhvodwh821}egsgacpizo2a_media_dl_1.png Office for National Statistics,(Bloomberg) — Public services in the UK face a £24 billion ($31.9 billion) hit in the current parliamentary term as higher energy prices and inflation eat into departmental budgets, the National Institute of Economic and Social Research warned.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an Account“Very difficult trade-offs” loom for new prime minister, Andy Burnham, because spending allocations made last year will no longer stretch as far as expected, the think tank said. It urged Burnham not to borrow more to fill the hole because the national debt is already unsustainably high.NIESR’s latest quarterly outlook underlined the difficult decisions Burnham and Chancellor of the Exchequer John Healey will have to make ahead of the autumn budget as they contend with the fallout from conflict in the Middle East and the cost-of-living impact on households.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againIt estimated that the combination of higher inflation, energy prices and borrowing costs has removed about £3 billion of headroom against the fiscal rules, which allow Britain to borrow for investment only by the end of the decade.While NIESR’s estimate is smaller than some economists reckon, it would still leave Healey with a projected current budget surplus of around £20 billion in 2029-30 as measured by the Office for Budget Responsibility — a small amount by historical standards. Bloomberg Economics puts the hit from just oil and borrowing costs at about £9 billion.David Aikman, director of NIESR, said the squeeze will be felt most within departments forced to inflict real-terms cuts on public services to cope with rising energy, materials and labor costs. The government faces additional pressures from defense and social care, which between them could cost more than £20 billion a year, and help for households as living standards improve just 0.1% next year.“Our message is direct,” Aikman said. “Commitments must be funded through taxation or savings elsewhere – not through more borrowing. That is the minimum needed just to hold the debt level where it is.”“Every major shock this century has ratcheted the debt ratio higher, and none of that increase has been reversed. If we are to rebuild the capacity to absorb the next shock, we will need a determined plan to bring debt down over time.”Burnham and Healey have pledged to abide by the fiscal rules in an effort to reassure jittery investors they can be trusted with the public finances. They are hoping economic growth and spending discipline will keep borrowing on track, and have hinted at targetted tax increases. NIESR revised its 2026 growth forecast to 1.1% from 0.9% and projected 1.1% in 2027. The bigger threat is inflation, it said, which will peak at 3.8% in February next year due to lagged increases in household energy bills. Inflation will average 3.1% both this year and in 2027 before dropping to 2.1% at the end of 2028.Its inflation forecast is higher than the 2.4% average projected by both the International Monetary Fund and the Organisation for Economic Cooperation and Development for 2027 but roughly in line with the Bank of England’s middle scenario of 3%.Although inflation remains above the 2% target until 2028, NIESR expects the BOE to hold interest rates at 3.75% this year and next. Markets are pricing in at least two more hikes to 4.25%. The BOE announces its next rate decision on Thursday alongside new forecasts.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.