UK 'on thin ice' before Oct 28 Budget, warns ex-Bank of England chief economist Andy Haldane

The United Kingdom is "on thin ice" ahead of its Autumn Budget on October 28, former Bank of England chief economist Andy Haldane has warned. He said the government must curb public spending and avoid painful tax hikes to calm financial markets.

Haldane, a member of the central bank's Monetary Policy Committee until 2021, told CNBC's Steve Sedgwick there were "perils" in running into the budget update.

Spending is the 'Achilles' heel'

"The truth is we are skating on pretty thin ice in fiscal terms, and nothing would be worse both economically and politically than if the ice were to crack beneath our feet," Haldane said on the sidelines of the How Britain Can Win conference, hosted by Goldman Sachs 10,000 Small Businesses UK.

Asked whether the ice will crack, he said there is "a risk of that".

The "single most effective way" to head off such an event, he added, would be for the government to "appease financial markets" by showing it is "able and willing to take the knife to public spending".

"That is the Achilles' heel of this government," Haldane said. "Unless and until action is taken on that, [Prime Minister Andy Burnham] will remain, alas, in hock to the bond market."

Burnham replaced Keir Starmer as prime minister over the summer. He has previously criticised the UK's fiscal policy as being "in hock" to bond traders. His emergence as frontrunner to oust Starmer rattled bond markets earlier this year, with investors reading him as more left-leaning than his predecessor.

Haldane said international bond markets had created a "hostile environment for all government borrowers", but the UK was hit harder because it is "a leveraged bet on the world economy".

"Our inflation is higher and stickier. Our growth is lower and stickier. We have yet to balance the books this century, so history is not on our side. The facts are not on our side. That's why the ice is thin."

Welfare and the triple lock

Haldane called Burnham's push to end the triple lock a "good first instalment". The mechanism raises the state pension by the highest of inflation, average earnings growth, or 2.5%.

Welfare, he said, remains a "totemic issue" for the governing Labour party and the bond market. Gilt markets came under pressure last year when Starmer's finance minister Rachel Reeves watered down initial plans to cut welfare spending, after a revolt from backbench MPs.

The Autumn Budget will be the first unveiled by Burnham's administration. Finance minister John Healey told the Financial Times last month he wanted to carve out a fiscal "buffer against uncertainty". He is tasked with bringing public spending and borrowing under control, with sticky inflation, elevated borrowing costs and lackluster growth adding urgency.

Burnham and Healey have also listed easing living costs, devolving political power to local authorities and raising defence spending as priorities. Savings identified so far have not covered the full mix of further cuts or tax measures needed to fund extra spending while sticking to the UK's fiscal rules.

Burnham has refused to rule out tax hikes, and the British press reports windfall taxes targeting banks might be on the table. Lenders have lobbied against it, with JP Morgan boss Jamie Dimon meeting Burnham and Healey in London last month.

Haldane warned against targeting businesses. "I think most would say that the great engine of growth is the private sector," he said. "[But] there's a real sense within the private sector that they are taxed out. A sense we're borrowing too much rather than too little, and therefore more of the same was not the route to growth, and I hope that's a penny that's beginning to drop inside government."

He added that the current government is "significantly underweight in its economic and financial expertise".

What it means for Nigeria

A hostile market for government borrowers raises the premium on frontier issuers. When gilt yields spike, global investors typically demand more to hold Nigerian Eurobonds too, which feeds into the cost of external borrowing and, ultimately, pressure on the naira.