Former Bank of England chief economist urges government to cut spending — CNBC

Former Bank of England chief economist Andy Haldane said the United Kingdom's fiscal position is unsustainable ahead of the autumn budget. In his view, the government must demonstrate its willingness to cut public spending in order to reassure financial markets, CNBC reports.

Warning ahead of the budget

Haldane, who was a member of the Bank of England's Monetary Policy Committee until 2021, said there are risks ahead of the budget update, currently scheduled for October 28. He compared the fiscal situation to being on a narrow ridge and noted that its deterioration would have negative economic and political consequences.

According to the economist, the most effective way to avoid such a development would be to convince markets that the authorities are able and willing to cut public spending. Haldane also warned against painful tax increases. He called spending control the government's “Achilles' heel,” adding that without action, Prime Minister Andy Burnham would remain dependent on the situation in the government bond market.

Cost of borrowing

As CNBC notes, the United Kingdom has the highest cost of government borrowing among G7 countries. The yield on 30-year UK government bonds stood at 5.8796%, while that on 10-year bonds was 5.3605%.

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Haldane stressed that international bond markets are creating difficult conditions for all sovereign borrowers, but the United Kingdom is under particular pressure. He linked this to higher and more persistent inflation, weak economic growth, and prolonged difficulties in balancing public finances.

Parameters of budget policy

The autumn budget will be the first for Burnham's administration. Finance Minister John Healey had previously said he intended to create a fiscal reserve for uncertainty. At the same time, the government named reducing the cost of living, devolving some powers to local authorities, and increasing defence spending as priorities.

Burnham did not rule out tax increases, while the British press wrote that the authorities may consider a windfall tax on banks. Haldane warned against concentrating tax measures on business, as he considers the private sector the main driver of economic growth.