Energy bills, higher borrowing costs and rising inflation have left the PM and his chancellor in a fiscal bind.
As Labour heads to Liverpool this week, Andy Burnham has promised to deliver “stability” in the public finances; but the economic backdrop is anything but stable.
The longer the US-Israeli war on Iran persists, the more likely it is that UK consumers will have to swallow higher mortgage rates and energy bills – just as the government is wrestling with its own surging borrowing costs.
Based on the pricing in energy futures markets, the Bank of England reckons Ofgem could increase the energy price cap by an eye-watering 24% in January.
At the same time, the Bank’s policymakers have repeatedly signalled that while they are reassured high energy prices have not yet fed through into wider inflation, they can’t hold off from raising rates for much longer.
Donald Trump made over the weekend that he has no intention of staunching the flames himself, by bringing the conflict to a close.
With UK inflation already above 3% and likely to rise further, markets are expecting the Bank to raise rates four times, to 4.75%, over the next 12 months.
Policymakers will also have to reckon with the impact on prices of what is expected to be the most powerful El Niño weather system in 1,000 years is likely to drive up the cost of foodstuffs.
Burnham has made offering the public a “breathing space” from higher costs a hallmark of his early weeks in power, with sensible but modest policies, such as the £2 bus fare cap.