Burnham’s talk of ‘breathing space’ at odds with reality of future Bank rate rises

By the Editorial Team · Friday, September 18, 2026

Andy Burnham’s efforts to ease financial pressure on UK voters face hurdles as the Bank of England kept interest rates at 3.75 percent but warned that ongoing geopolitical tensions, especially the conflict in the Middle East, may force future rate hikes. Rising inflation driven by higher energy costs and potential food price shocks threaten to increase borrowing expenses, limiting the government’s ability to provide additional economic support.

Andy Burnham’s pledge to provide “breathing space” for voters faces challenges as the Bank of England signals the possibility of further interest rate increases amid growing economic pressures. At its most recent meeting on Thursday, the Bank’s Monetary Policy Committee (MPC) held the base rate steady at 3.75 percent but indicated that tightening monetary policy could be necessary if geopolitical tensions persist.

Bank Governor Andrew Bailey highlighted the ongoing conflict in the Middle East as a significant factor influencing the Bank’s outlook. He noted that should hostilities continue for an extended period, policymakers may need to raise interest rates to counter inflationary risks. Bailey also observed a “seeming loss of urgency to find solutions” in the region, underscoring the potential for sustained market volatility.

When Burnham assumed office in July, the global environment was relatively stable, with the UK economy showing signs of steady, though modest, growth. However, the resurgence of conflict in Iran has pushed oil prices back above $100 per barrel, triggering ripple effects through global energy markets. In the UK, inflation rose to 3.1 percent in August, driven largely by escalating fuel costs.

Mortgage interest rates have increased in line with market expectations for higher inflation, even though the Bank opted not to raise the base rate this month. The MPC’s projections now indicate that inflation could exceed 4 percent by early 2027, reflecting ongoing uncertainties.

The committee’s decision to maintain rates was passed by a margin of six to three, consistent with its July vote, reflecting a cautious approach amid mixed signals. While surging energy prices raise concerns, a relatively weak jobs market is seen as moderating the risk of entrenched inflation. Nonetheless, there is an evident unease among policymakers about the economic impact of rising energy costs and potential “second-round effects” on wages and prices.

The Bank’s stance contrasts with other major central banks. The US Federal Reserve recently raised borrowing costs for the first time since 2023, a move that defied pressure to cut rates and was favourably received by financial markets despite drawing criticism from then-President Donald Trump. The European Central Bank also increased rates last week, and the Bank of Japan is expected to follow suit shortly.

Burnham began his tenure with targeted measures aimed at alleviating consumer costs, such as capping bus fares and reducing VAT on electricity bills. However, the combination of higher inflation, energy prices, and rising government borrowing costs complicates these efforts. Increased borrowing expenses may limit the government’s capacity to introduce further financial support for households.

The MPC has also flagged additional risks to food prices from anticipated weather-related shocks, while bond markets remain volatile. Burnham has signalled a shift toward prioritising domestic policy over international engagement, differing from his predecessor Keir Starmer’s approach.

Yet, with the ongoing conflict in Iran showing no signs of abating, the economic consequences of global geopolitical instability are poised to continue exerting pressure on the UK economy and government policy moving forward.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.