Analysts say ahead of the UK chancellor's speech today that restoring most of
the country's fiscal buffer is necessary to reassure bond investors. UK fiscal
headroom has shrunk by roughly half from the £23.6 bln left by the previous
chancellor after a global selloff in UK bonds; returning to that level would
likely require tax increases and spending cuts. Economists warn the measures
would be politically unwelcome for the new government but are seen as necessary
to re-establish fiscal credibility; failure to present a credible fiscal
strategy amid current market stress could be very costly.
