Ahead of Chancellor of the Exchequer Healy's speech today, research institutions suggest that Healy should restore most of the UK's fiscal buffer in his budget to reassure bond investors. Affected by the global sell-off that has pressured UK government bonds, the UK's fiscal space has shrunk by half from the £23.6 billion left by his predecessor, Reeves. To restore fiscal space to that level, Healy will likely need to raise taxes and cut spending. This is not the signal the new government hopes to send, but British economist Dan Hansen says it is necessary to demonstrate fiscal credibility. Restoring most of the buffer would be a crucial signal to the UK bond market that the government is taking fiscal discipline seriously. The current risks are high, and failing to deliver a credible fiscal strategy in the current environment could be extremely costly.
