“The OECD urge countries to control spending and improve public sector efficiency. Instead, this Government is trying to find new ways to tax you whilst having to pay interest rates on their borrowing which are the highest in the G7.”

Reform UK’s Robert Jenrick added: “The UK is forecast to grow much slower than the US with inflation still stuck at around 3%. And that’s before the possible shock to diesel supplies from a Trump export ban.

The economy is on course to have grown by 1.1% this year, according to the new forecasts by the OECD.

Mr Burnham admitted the state of Britain’s economy has worsened in recent months amid the Iran conflict, which has pushed up energy prices.

Speaking to reporters as he travelled to New York for the UN General Assembly, he said: “The truth of the matter is that because of the situation in the Middle East, the position changed, and has changed over the time I’ve been in. That’s just the reality of the situation that we’re in.

“And of course the message is that we want to see an end to the conflict as quickly as possible and we stand ready to play our part.”

Andy Burnham Issued Huge Warning as PM Suffers New Economic Blow

Andy Burnham has been handed a fresh economic warning after new forecasts suggested that Britain’s growth could slow next year, adding to the pressure on the prime minister and Chancellor John Healey ahead of the government’s crucial October Budget.

The latest figures contain both positive and negative elements.

The Organisation for Economic Co-operation and Development expects the UK economy to grow by 1.1% in 2026, an upgrade from its previous forecast of 0.9%. But it then expects growth to slow to just 1% in 2027. Inflation is also expected to remain elevated, with the OECD forecasting an average rate of 3.1% for Britain this year.

For Burnham’s government, the timing is particularly difficult.

The October 28 Budget is approaching, while borrowing costs have increased and government borrowing has come in above expectations. Ministers are therefore attempting to find room for their spending commitments while maintaining confidence in Britain’s public finances.

The latest economic forecasts do not represent a prediction of the government’s political fortunes. But they do highlight the difficult economic environment in which Burnham is attempting to implement his programme.

Growth upgraded — but the outlook is weaker

The OECD’s latest assessment provides an important qualification to the negative headlines.

Britain is expected to perform better in 2026 than previously thought. The organisation raised its growth forecast from 0.9% to 1.1%.

That improvement is significant because the UK economy has faced a series of external pressures, including higher energy prices linked to the conflict in the Middle East.

However, the outlook becomes less favourable in 2027.

The OECD expects growth to fall to 1%, reflecting the continuing impact of the energy shock and wider economic uncertainty.

That creates a difficult policy environment for Healey.

A government preparing to increase investment and maintain public services would generally prefer a stronger growth environment, because faster economic expansion can increase tax revenues and reduce some pressure on public finances.

Slower growth makes that task more complicated.

Inflation remains a problem

The growth warning is also accompanied by persistent inflationary pressure.

Official figures showed UK consumer-price inflation rising from 2.9% in July to 3.1% in August.

The increase was linked in part to higher fuel and energy prices, while air fares also increased significantly between July and August.

The problem for Burnham is that inflation creates pressure in several directions at once.

Households face higher prices.

The government faces increased costs for public services.

Workers may seek higher wages to compensate for rising living costs.

And higher inflation can put pressure on interest rates and government borrowing costs.

That combination can make economic management particularly difficult.

Burnham has already acknowledged that the economic situation has changed since he entered Downing Street, pointing specifically to the consequences of the conflict in the Middle East.

He said the government’s position had changed because of the external circumstances and argued that the conflict should end as quickly as possible.

The borrowing problem

Perhaps the most immediate concern ahead of the Budget is government borrowing.

The Office for National Statistics reported that public-sector net borrowing reached £18.3 billion in August 2026.

That was £3.5 billion higher than the figure forecast by the Office for Budget Responsibility.

Government borrowing during the financial year to date has also been running above the OBR’s expectations.

The increase was partly associated with higher debt-interest payments.

That matters because the government must pay interest on its existing debt regardless of whether it has new spending ambitions.

When borrowing costs rise, the amount required to service the national debt can increase substantially.

The August figures therefore arrive at an awkward moment for Healey.

The Chancellor is attempting to prepare a Budget that addresses household costs, defence spending and the government’s wider programme while simultaneously dealing with higher financing costs.

Bond markets are another warning sign

The pressure is not limited to the monthly borrowing figures.

UK government bond yields have risen sharply during recent periods of market turbulence.

Earlier in September, the yield on 10-year government debt reached 5.29%, its highest level since 2008, during a global bond sell-off.

Higher yields mean that the government generally has to pay more to borrow.

They can therefore reduce the amount of money available for new policies.

The Guardian reported that analysts believed the increase in debt-interest costs could potentially remove a substantial portion of the fiscal headroom that had previously been available to the government.

That does not necessarily mean that the government must abandon its plans.

It does mean that the arithmetic becomes more demanding.

Burnham’s response: fiscal responsibility

Burnham has sought to reassure investors and the public that his government will respect its fiscal rules.

During his first Prime Minister’s Questions, he refused to announce specific Budget measures from the Commons dispatch box.

Instead, he said the Budget was a matter for Healey and argued that setting an early Budget date would reduce the period of speculation that could affect markets.

Earlier, amid the bond-market turbulence, Burnham said the Budget would stick to the government’s fiscal rules while also attempting to reduce pressure on household living costs.

That is the central balancing act.

The government wants to spend money on its political priorities without allowing borrowing to rise beyond what financial markets are willing to accept.

At the same time, simply cutting spending could make it more difficult to deliver the improvements that Burnham has promised.

Economists have warned of difficult choices

The economic pressures have already generated warnings that the government may need to consider tax increases or spending reductions.

The Independent reported last week that economists believed the government could require measures worth as much as £10 billion to deal with mounting pressures, while its fiscal buffer had potentially fallen from around £23 billion to between £5 billion and £10 billion.

These estimates are not official Budget decisions.

The eventual fiscal position will depend on updated economic forecasts, tax receipts, interest rates, spending and other variables.

Nevertheless, they demonstrate why the Budget has become such an important moment for Burnham’s government.

The Chancellor cannot simply assume that the economic conditions seen earlier in the year will continue.

The cost-of-living dilemma

Burnham has made reducing pressure on household finances one of the government’s priorities.

But inflation creates an unusual problem.

A government can provide direct assistance to households, but doing so costs money.

At the same time, higher government spending can add to demand in the economy, depending on the circumstances, while tax reductions can reduce government revenues.

Burnham therefore faces a three-way challenge involving household support, economic growth and fiscal sustainability.

The government’s recently announced removal of VAT from household energy bills from October is one example of the approach being taken. The OECD said consumers could receive some support from newly announced government measures such as this.

However, the measure also has a cost to the Treasury.

The wider question is how much additional support can be provided while maintaining the government’s fiscal rules.

The international picture is also difficult

Britain is not facing these pressures alone.

The OECD has warned that governments across advanced economies are dealing with rising debt and borrowing costs.

The international organisation expects global growth of 2.9% in 2026 and 3% in 2027, while highlighting the risks created by energy-price shocks and high government debt.

The International Monetary Fund has similarly warned advanced economies that they need to bring debt down as borrowing costs rise.

IMF managing director Kristalina Georgieva said governments needed to take action to contain debt-service costs.

For Burnham, that means some of the economic difficulties are external rather than uniquely British.

However, the government still has to make domestic choices about taxation, spending and borrowing.

Burnham’s argument about Britain’s economic model

The prime minister has also used the current difficulties to argue for a different approach to the British economy.

In an interview with the New Statesman, Burnham defended earlier comments that Britain was too exposed to global bond markets.

He said his argument was not for uncontrolled borrowing and spending but for building a more resilient economy that was less vulnerable to international price shocks.

He described his broader political approach using the word “control” and argued that the state should create conditions in which private investment could flourish.

That provides an important context for the government’s economic programme.

Burnham is not simply arguing that the state should spend more.

His stated objective is to change the relationship between government, infrastructure, public services and private investment.

The difficulty is that such structural changes take time, while the Treasury has to balance its books immediately.

The Budget becomes increasingly important

The October 28 Budget will therefore be closely watched.

Healey will have to publish updated economic and fiscal calculations while explaining how the government intends to finance its commitments.

The government will also have to address the pressures created by higher borrowing costs and slower expected growth.

For households, the key questions will include taxation, energy costs and public services.

For businesses, the focus is likely to include investment, demand and the wider economic outlook.

For financial markets, credibility will remain central.

A warning, but not a verdict

The latest OECD figures should not be interpreted as proof that Burnham’s economic programme has failed.

Indeed, the 1.1% growth forecast for 2026 represents an improvement on the organisation’s previous estimate.

But the expected slowdown to 1% in 2027, combined with inflation at 3.1% this year and higher government borrowing costs, creates a difficult backdrop for the government’s plans.

The prime minister’s response has been to emphasise fiscal responsibility while maintaining his commitment to reducing household pressure.

Whether those objectives can be reconciled will depend heavily on the choices made in the Budget.

The warning for Burnham is therefore less about one economic number than the combination of several pressures arriving simultaneously: slower future growth, persistent inflation, expensive government borrowing and limited fiscal room.

The government now has to decide how to respond.

The October Budget will provide the clearest indication yet of how Burnham and Healey intend to navigate that increasingly difficult economic landscape.

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