UK budget to prioritise bond markets as Labour tensions mount, Bloomberg reports

Investing.com -- British Chancellor John Healey is preparing a cautious budget aimed at reassuring bond investors, potentially disappointing Labour lawmakers seeking more ambitious economic reforms under Prime Minister Andy Burnham, Bloomberg reported on Saturday.

Healey’s first budget, scheduled for Wednesday, is expected to prioritise fiscal discipline, avoid broad tax increases and preserve confidence in British government debt.

According to Bloomberg, the Treasury is considering higher taxes on banks to finance targeted, temporary assistance for households struggling with rising energy costs.

The chancellor is also expected to maintain a fiscal buffer of at least £15 billion ($20 billion), based on a Bloomberg survey of primary dealers.

British government bonds have recently outperformed some European peers as investors welcomed signals that the administration would avoid significant increases in borrowing.

However, the approach risks creating tensions within Labour, where lawmakers had anticipated more substantial policy changes following Burnham’s replacement of Keir Starmer in July.

Burnham previously outlined proposals to revise Britain’s Brexit arrangements and establish a national social care service, but the upcoming budget is unlikely to advance those priorities significantly.

Major decisions involving defence expenditure and welfare reductions have also been postponed, according to the report.

Government officials are particularly concerned about the economic consequences of further escalation in the U.S.-Iran conflict, which could disrupt energy supplies and undermine fiscal forecasts.

Treasury officials rejected suggestions that the budget would lack ambition, indicating that additional cost-of-living measures could still be announced.

Some Labour lawmakers have nevertheless expressed frustration that fiscal caution appears to be taking precedence over the government’s broader economic agenda.

The political challenge comes despite improved polling for Labour since Burnham became prime minister, with the party moving ahead of Reform UK.

Meanwhile, disagreements over immigration, welfare reform and the government’s forthcoming 10-year policy plan could further test Labour unity after Wednesday’s budget.