Andy Burnham has been warned by a leading economic think tank that he will face «very difficult trade-offs» in his first budget, with no capacity to increase borrowing to deliver his spending pledges. The National Institute of Economic and Social Research (NIESR) said the new prime minister inherits an economy constrained by higher-than-expected inflation, falling growth, and a severe squeeze on public spending, leaving him little choice but to raise taxes or cut spending.
NIESR's analysis, reported ahead of the autumn budget, paints a bleak fiscal picture. The think tank said there is «no scope» for extra borrowing to fund cost-of-living support or to revamp public services, as inflation remains more persistent than previously forecast. Growth is expected to plummet, further constraining the government's room for manoeuvre. The warnings come against the backdrop of the Iran war, which has pushed up oil prices and added to inflationary pressures, making the chancellor's task even harder.
Prime Minister Burnham came to office with ambitious pledges to improve public services and provide greater support for households struggling with the cost of living. However, the fiscal headroom appears to have evaporated. NIESR described the situation as a «challenging inheritance», noting that the combination of high inflation, weak growth, and limited borrowing capacity means the government will have to make unpalatable choices. Tax rises or spending cuts appear unavoidable if the pledges are to be honoured.
The think tank's report underscores the broader economic challenges facing the UK. Inflation has been slower to ease than expected, partly due to global energy market disruptions, and the economy is showing signs of stagnation. Meanwhile, public debt remains high, and borrowing costs have risen. Against this backdrop, any additional borrowing for new spending would risk fuelling inflation further and undermining market confidence. NIESR's analysis suggests that the government's room for fiscal stimulus is essentially non-existent.
Senior economists at the institute warned that the coming budget would be one of the toughest in recent memory. They said the government must be realistic about what can be achieved without a clear plan to raise revenue or reduce expenditure. The comments echo concerns from other fiscal watchdogs that the UK's public finances are under severe strain. With the autumn budget approaching, all eyes will be on how Burnham and his chancellor, John Healey, navigate these constraints.
The National Institute of Economic and Social Research is one of the UK's oldest and most respected independent economic research institutes, and its warnings carry significant weight in policy circles. Its assessment suggests that the new prime minister's room for fiscal generosity is severely limited by the economic realities inherited from his predecessor. The budget due later this year will be a defining moment for the government's economic credibility.
