Prime Minister Andy Burnham sought to reassure markets during his first session at Prime Minister’s Questions amid concerns about rising mortgage rates and increasing energy bills. Addressing Parliament, Burnham emphasized his government’s commitment to fiscal responsibility despite the borrowing costs reaching their highest level in nearly 20 years.

The prime minister stopped short of ruling out additional borrowing or tax increases in the upcoming budget, scheduled for October 28, as he navigates efforts to balance public finances. Economists note that the government’s fiscal headroom, previously estimated at £24 billion, has effectively been halved due to economic pressures linked to the ongoing conflict in Iran.

The surge in borrowing costs has led to a notable increase in swap rates, which are key benchmarks used by mortgage lenders to set fixed-rate loans. Property market specialists have advised borrowers to secure deals promptly ahead of anticipated rate hikes. Rachel Springall of Moneyfacts highlighted that a global sell-off in bonds has elevated wholesale funding costs, pushing swap rates to 30-day highs and creating challenging conditions for borrowers. Similarly, Chris Sykes from MSP Financial Solutions warned that swap rates have climbed to levels not seen for some time, indicating that prospective borrowers should not expect a quick return to the lower rates seen earlier this year.

Energy markets have also seen volatility, with European gas prices rising to their highest point in over three years, intensifying concerns about the UK’s gas storage levels. Household energy bills are set to increase by £60 in October, with further rises expected in January following adjustments to the price cap.

In the Commons, Conservative deputy leader Kemi Badenoch questioned Burnham about plans to address Britain’s rising debt and whether tax increases are anticipated. Burnham deflected, attributing current market instability and borrowing costs to the prior Conservative government’s record of stagnant growth and increasing debt over 14 years. He cited data indicating that the UK recorded the fastest growth among G7 nations in the first half of the year and that borrowing had fallen to its lowest level in six years.

Financial figures including Lord O’Neill of Gatley, a senior economic adviser associated with Burnham, and former Office for Budget Responsibility official Sir Charles Bean have suggested that the government reconsider the state pension triple lock amid rising bond yields. Mohamed El-Erian, former chief executive of Pimco, cautioned that borrowing alone would not resolve economic challenges and warned of mounting recession risks for the UK.

Burnham acknowledged economic headwinds stemming from the Iran war but affirmed his administration’s intention to reduce debt while addressing the cost-of-living pressures faced by households. He reiterated his government’s adherence to fiscal rules without providing specific details on tax or spending plans ahead of the budget.

Lord O’Neill has indicated that the upcoming budget will likely require spending cuts, tax increases, or a combination of both to restore fiscal capacity. Meanwhile, Sir Howard Davies, former NatWest chairman, described the period before the budget as “very dicky” and called on the government to clarify its approach to fiscal balance to restore market confidence.

Badenoch accused Burnham of lacking transparency about funding his policy promises, pressing him for a direct answer on potential tax rises. Burnham reiterated that tax decisions fall to the chancellor and that setting the budget date early was intended to reduce prolonged uncertainty.

As Britain faces these intertwined fiscal and economic pressures, the government’s forthcoming budget will be closely scrutinized for signals on how it plans to manage public finances amid external market volatility.