A former chief economist of the Bank of England, Andy Haldane, has warned that the UK is 'skating on thin ice' ahead of the upcoming Autumn Budget on October 28, citing risks to financial stability if the government fails to curb public spending. Haldane, speaking at the How Britain Can Win conference hosted by Goldman Sachs, stated that the government must demonstrate a willingness to 'take the knife to public spending' to appease financial markets and avoid further pressure on bond yields.
The UK's borrowing costs have surged to a 28-year high, with yields on government bonds—known as gilts—rising amid domestic and global economic instability. Haldane emphasized that the UK is particularly vulnerable due to its higher and stickier inflation and lower growth compared to other advanced economies. He added that the government’s perceived reliance on bond markets, described as being 'in hock' to them, remains a key concern for investors.
Haldane, who served on the Bank of England’s Monetary Policy Committee until 2021, also cautioned against further tax hikes, calling them 'disastrous' and warning they could 'crater growth'. He described the government as 'significantly underweight' in economic expertise, positioning himself as a critic of the current administration’s fiscal direction.
Prime Minister Andy Burnham, who replaced Keir Starmer earlier this year, has previously criticized the UK’s fiscal policy for being 'in hock' to bond traders, a remark that unsettled markets when he made it as a Labour leadership candidate. While Burnham later appointed Haldane and former Goldman Sachs chief economist Jim O’Neill as informal advisors, neither has taken up a formal role in government. Haldane has since accused Burnham of leading a 'traditional tax and spend socialist government with better TikTok videos', further fueling concerns among investors.
The gilt market has been under strain due to a combination of global inflation driven by geopolitical tensions, including the Iran war, and domestic uncertainty over the government’s fiscal strategy. With the UK now having the highest government borrowing costs in the G7, the pressure on the October 28 budget is intensifying. Analysts note that the government’s ability to reassure markets will hinge on its willingness to implement spending reductions while avoiding measures that could dampen economic growth.
The warnings from Haldane underscore the tightrope the government must walk between addressing market concerns and maintaining public services amid rising costs and economic headwinds.