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Autumn budget faces “very difficult trade-offs” because of Iran War

Published 11:30 29 Jul 2026 BST

Updated 10:48 29 Jul 2026 BST

JOE
Autumn budget faces “very difficult trade-offs” because of Iran War

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The Autumn budget may not be plain sailing

The Autumn budget faces "very difficult trade-offs" if the Iran war keeps oil prices and inflation high, a leading thinktank has warned, handing new Prime Minister Andy Burnham what it calls a "challenging inheritance".

With oil prices having briefly climbed back above $100 a barrel and the strait of Hormuz all but closed since March, a leading thinktank, the National Institute of Economic and Social Research (NIESR), said it expected inflation to rise to 3.8% over the next seven months. That would force Chancellor John Healey to find an extra £24bn by the end of the decade to maintain services and real-terms welfare payments.

What the autumn budget squeeze means

The institute cut its forecast for the chancellor's spending headroom from just over £7bn to nearer £3bn. The Office for Budget Responsibility had estimated in March that the Treasury held about £22bn of spare capacity above existing commitments. The NIESR also downgraded UK growth to 1.1% this year and next, warning the economy would suffer £28bn in lost growth over two years compared with January forecasts.

Burnham faced "a challenging inheritance" with spending "eroded by inflation", coupled with the highest borrowing costs in the G7, new spending demands and cost-of-living pressures.

David Aikman, NIESR director

For households already wondering what Andy Burnham's government means for your payslip, the analysis underscores how the Middle East conflict is reaching far beyond the region. With the prime minister's plans to revamp public services now under severe pressure, the autumn statement is shaping up to be the toughest test yet of his young premiership.