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Think tank warns PM Burnham faces funding squeeze on defence and cost help
Niesr projects inflation will keep rising until February 2027, peaking at 3.8%, and says the Bank of England is unlikely to cut rates until 2028.
Prime Minister Andy Burnham will likely need to raise taxes or cut spending to fund pledges on defence and cost of living measures, the National Institute of Economic and Social Research (Niesr) warned, citing pressure on public finances from more persistent inflation linked to the Iran war.
Burnham has announced measures since taking office last week, including cuts to electricity bills and bringing the bus fare cap in most parts of England back down to £2, but Niesr questioned whether the plans were fully thought through in terms of how they will be paid for.
Niesr said it expects inflation to keep rising until February 2027, peaking at 3.8% before falling back toward the Bank of England’s 2% target. The think tank also said it does not expect the central bank to cut interest rates until 2028.
The director of Niesr, David Aikman, argued that “treading water is not enough” to stop the national debt ratio from increasing, and noted that past shocks have pushed debt higher without reversal. The Treasury said the government will stick to its fiscal rules while investing in public services, with a spokesperson calling fiscal discipline the basis for economic stability and national security, according to BBC Business.