Burnham and Healey Still Need to Provide Fiscal Clarity

If you’ve watched shows like The Wire or House of Cards you’ll know that newsrooms are dramatic, cut-throat places where journalists storm around the office arguing over stories that are destined to bring down a head of state.

Except, whisper it — *they are not normally anything like that*.

To demonstrate the point, this is how some senior colleagues and I spent part of today: we debated the meaning of the words “two years.” Or specifically “two calendar years.” What exactly do those three words mean?

Allow me to explain. After Labour’s 2024 election victory Rachel Reeves criticised previous Conservative administrations for failing to hold regular spending reviews, and leaving government departments in the dark over their upcoming budgets. She duly held a spending review in June 2025, for a three-year period beginning in 2026-27. The Treasury then pledged “to lay a spending review before Parliament every two calendar years” in order to give departments sufficient certainty and notice.

Thus, a lot of people assumed the current Labour government would hold its next spending review in the spring — or at least the early summer — of 2027. This assumption was bolstered by the number of times that ministers have cited the spending review as the point at which we’ll get all-important detail about Prime Minister Andy Burnham’s plans. Surely they wouldn’t say “ah, that’ll be in the spending review” if such a review was more than a year away?

Yet now, in response to a story in the Times, Treasury officials will only go so far as to pledge that the spending review will be held by the end of 2027. Which begs the theoretical question: if the spending review was combined with a budget in, say, November 2027, would that count as falling within “two calendar years” of the June 2025 event? I’ll leave you to decide.

It may seem like pedantry and semantics but the state of Britain’s public finances makes it significant. Burnham’s Labour wants to ramp up support for the military and ease the cost of living for millions of people, while also keeping gilt traders onside — and at this point in time we don’t know how those sums will add up. On defence spending in particular, Burnham and his Chancellor of the Exchequer John Healey have said details will be revealed not in this month’s budget, but in the spending review.

“They don’t want to have the conversation about cutting benefits so they’re going to wait for more time to come up with a plan,” David Zahn, head of European fixed income at Franklin Templeton, told Bloomberg this morning. “They’re kicking the can down the road and hoping something will come along to fix things.”

With yields elevated, the UK government would do well to avoid any accusation of can-kicking. Its fiscal plans should ideally be clear, realistic and issued without delay. To that extent, the meaning of “two years” suddenly looks all the more pertinent.

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Markets Today: Whither the Jobs?

Hi, this is Dave from the MT blog.

Bloomberg’s Irina Anghel had a great piece of analysis today showing that workers are missing out on the UK’s better-than-expected economic performance.

While the economy has grown 2.5% since early 2024 — almost double the pace of Germany, France and Italy — Irina points out that the labour market has gone backwards, with tax data showing firms have cut a quarter of a million payrolls in what she calls a “jobless recovery”.

That may sound like a reason to hold off from any rate hikes, but the kicker is that it’s not worrying enough to concern hawks at the Bank of England.

Catherine Mann, who has been voting for rate hikes of late, said today that the UK jobs market isn’t yet bad enough to tame inflation, and that price pressures are becoming embedded. If officials tighten and inflation turns out to be more benign than feared, policymakers can always “pivot” in the other direction, she argued.

For now, traders are buying into the idea that rate hikes are needed. Markets are nearly fully pricing in a move next month, and a total of 100 basis points of increases over the next year. If that comes to pass, the risk is that growth and employment both take a hit.

If a jobless recovery is bad news, a jobless downturn is surely even worse.

Read the Markets Today live blog for rolling news and up-to-the-minute analysis during UK market hours.

What they said

“I’m not in favor of things that lack principle” Jamie Dimon CEO of JP Morgan Chase The prospect of another bank tax continues to be unpopular with major lenders. The UK Treasury is giving little away.

One Big Story

France’s Decades of Deficits Bring Home a Painful Risk Premium“Reality is catching up with us,” said Prime Minister Sebastien Lecornu, warning of the rapid increase in borrowing costs.

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