Prime Minister Andy Burnham and Chancellor John Healey (Image: Getty)
Cash-strapped households face a cost-of-living “triple whammy” set to continue well into 2027. Energy bills, mortgage payments and checkout prices are all set to soar. And experts are warning that the cost-of-living crisis that began in 2021 shows no sign of ending – and instead will get worse.
It means Chancellor John Healey faces a massive challenge as he prepares for this week’s Budget. Along with Prime Minister Andy Burnham, he wants to give people “breathing space” to help with rising bills. And just this week, a scheme to cut £150 off heating bills for every household on means-tested benefits came into effect. But the Government has massive debts, meaning it would be hard to find money for tax cuts.
Tom Wernham, senior research economist at the Institute for Fiscal Studies, said: “Household incomes have barely grown since 2019, and we’re not expecting a substantial uptick any time soon. The latest Office for Budget Responsibility forecasts from March predict incomes will grow slowly by historical standards in the coming years – less than half a percent annually – and they don’t yet take into account the hit to households’ purchasing power from the Iran war and the inflationary pressures it has contributed to.”
The Food and Drink Federation has forecast that food inflation will reach nearly 4% by Christmas and peak at 6.4% in July 2027, as a result of the conflict in Iran and the impacts of extreme weather on the global food supply chain, including El Niño and this summer’s droughts across the UK and Europe
Food prices have risen by nearly 40% since 2020. A £100 weekly shop in 2020 would cost nearly £140 today and will approach £150 by next summer.
Commodity prices have risen across the globe, with wheat up 45% in the past year, cocoa up over 100%, rice 60%, sugar 27% and coffee 22%.
The British Retail Consortium has also highlighted rising food costs, as well as higher electrical prices amid the ongoing AI boom, which is forcing up the price of memory chips and storage.
James Walton, chief economist at the Institute of Grocery Distribution, said: “Shoppers have already adapted to repeated periods of high food price inflation. Many have changed how and where they shop, switched products or reduced discretionary spend, leaving fewer options available to absorb any further price rises.”
Fruit and vegetables are expected to rise in price, reflecting their shorter production cycles and high sensitivity to weather. Other foods and non-alcoholic drinks are also expected to become more expensive.
Mortgage experts warned that interest rates are set to increase throughout 2027, leading to soaring monthly payments for many homeowners.
The average two-year fixed mortgage rate is already up by 0.89% since March, adding £131 to monthly mortgage repayments on a £250,000 mortgage repaid over 25 years.
But the Bank of England is expected to hike interest rates next year. And even the expectation of higher rates to come will lead to high street banks and building societies charging higher interest rates on they deals they offer, using a process known as “swap rates”.
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said: “A second wave of mortgage rate hikes has begun from the major banks in reaction to growing concerns surrounding inflationary pressures.
“Swap rates have climbed, leading lenders such as NatWest, Santander, HSBC and TSB to increase selected fixed rates.”
While the Bank of England held interest rates steady in September, experts believe it could push them up in November, and may impose a series of rate hikes next year. This belief is already having an impact on mortgage rates, increasing monthly payments for homeowners on variable rates, or renewing fixed rate deals.
Energy costs
Regulator Ofgem has announced a 4% increase in the domestic energy price cap coming into effect in October.
Cornwall Insight’s new forecast (on August 26) shows no relief in sight for January, with bills forecast to rise a further 9% in the new year. This would put an average January bill up to £1,872 a year, £149 higher than the £1,723 October price cap announced in August. The January figure will not be confirmed until November.
Experts at Cornwall Insight predicted the average dual fuel energy bill will rise by 16% to £1,999 a year on January 1, up by £276 on the level between October and December and the biggest rise since January 2023.
The analysts said the increase is driven by the escalating conflict in the Middle East, which has disrupted gas supplies to the UK and worldwide as the vital Strait of Hormuz shipping route has been effectively closed since the Iran war began in February.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “These prices are going to hit households hard.”
Voters fear the worst
New polling showed 44% of the public report feeling more fearful about how announcements in the upcoming Autumn Budget might impact their own financial situation. It revealed that eight in 10 Brits describe the current state of the British economy as poor.
Alex Bogdan, research director at Ipsos in the UK, said: “The Burnham Bounce may have provided a temporary cushion for the new Government, but this goodwill is not yet translating into an improved economic mood or ‘hope’ among households and businesses just yet.
“Brits remain deeply anxious about their personal finances and these underlying worries continue to dictate consumer sentiment where we see that expectations of higher energy bills and other cost-of-living factors already driving saving and spending decisions in people’s lives.
“While the Prime Minister and Chancellor enter their first major fiscal event with a degree of ‘breathing space’, voters simultaneously are demanding clear signals of improvement, without showing a clear willingness to accept painful compromises on tax, spending, or other economic trade-offs.”
The 3 Nightmares Haunting Andy Burnham and John Healey Before the Crunch Budget
Andy Burnham and Chancellor John Healey are heading towards a crucial Budget under pressure from three major challenges: rising household costs, a shrinking margin for financial manoeuvre and growing demands for public spending. With families hoping for relief and businesses looking for stability, the government must decide how to balance immediate support with the need to keep the public finances under control.
The Autumn Budget is scheduled for October 28, 2026. Healey has promised to work within the government’s fiscal rules while seeking to give households and businesses some breathing space after years of price pressures. Yet the choices facing the Treasury are becoming increasingly difficult.
The central problem is that voters want lower bills and better public services, while financial markets expect the government to demonstrate that its spending and tax plans are credible. Burnham and Healey must navigate both demands without making promises that the public finances cannot sustain.
Nightmare One: The cost-of-living crisis refuses to disappear
The first and most immediate challenge is the continuing pressure on household budgets. Energy bills, mortgage payments and supermarket prices are squeezing families who have already spent years adjusting their spending to cope with higher living costs.
According to the reporting ahead of the Budget, food inflation could rise towards 4% by Christmas and peak at 6.4% in July 2027, reflecting pressures from the conflict involving Iran, extreme weather and disruption to global supply chains. These are forecasts rather than guaranteed outcomes, but they illustrate the uncertainty facing households.
For many families, even a modest additional increase in grocery prices can have serious consequences. People may switch supermarkets, choose cheaper products or reduce non-essential purchases, but there is a limit to how much more they can cut from their budgets.
The pressure is particularly difficult for pensioners, low-income households and families with children, whose spending is often concentrated on essentials. When food, heating and transport become more expensive simultaneously, there may be little money left for savings or unexpected expenses.
Energy bills present another problem. The government’s own Budget preparations have acknowledged the possibility of further increases, with support for some households expected to be considered as part of its response to rising costs. The precise level of future bills will depend on market conditions and the regulator’s subsequent price-cap decisions.
Burnham has made easing the cost of living a central part of his political message. However, providing financial assistance to households costs money, and the Treasury must determine how to fund any additional measures without undermining its wider fiscal commitments.
Healey therefore faces a difficult choice. Targeted assistance could help those most exposed to rising bills, but broader subsidies would be more expensive and could direct public money towards households that need less support.
The government must also consider whether temporary assistance addresses the underlying problem. Helping families through a particularly difficult winter may provide immediate relief, but it will not permanently resolve Britain’s exposure to volatile energy prices or the pressures affecting food production and distribution.
The first nightmare is therefore not simply that prices may rise again. It is that the government could find itself spending more to protect households while having limited resources available for other priorities.
Nightmare Two: Mortgage costs and borrowing pressures
The second challenge concerns interest rates and the cost of borrowing. These pressures affect households directly through mortgages and indirectly through the interest payments the government must make on its own debt.
Mortgage rates can rise even when the Bank of England has not announced an increase in its base rate. Lenders also respond to expectations about future interest rates and changes in financial markets, including movements in the rates at which banks borrow over longer periods.
Recent reporting has highlighted increases in some fixed mortgage rates as market expectations have shifted. For homeowners approaching the end of a fixed-rate deal, this can mean facing substantially higher monthly repayments when they refinance.
The consequences extend beyond individual homeowners. Higher mortgage payments leave households with less money to spend in shops, restaurants and local businesses. That can weaken consumer demand and make it harder for businesses to expand or recruit.
Renters may also feel the effects over time if landlords face higher financing costs and attempt to pass some of those expenses on through rents, although the extent of any effect varies between markets.
For Healey, borrowing costs create a parallel problem. When the government pays more interest on its debt, less money is available for other spending unless ministers raise additional revenue, reduce expenditure or borrow more.
The House of Commons Library’s October 23 briefing on the 2026 Autumn Budget notes that government debt is equivalent to around 94% of gross domestic product and that debt-interest spending has more than doubled since 2019–20. It also highlights the increased cost of issuing new government debt.
This matters because Healey has committed to meeting the government’s fiscal rules. If borrowing costs rise or the economic outlook deteriorates, the room available for additional spending can narrow.
The Chancellor must therefore reassure financial markets that his plans are credible while avoiding measures that place unnecessary pressure on households already struggling with mortgages and other bills.
There is a difficult balance to strike. Cutting spending too aggressively could weaken public services or economic activity, while making unfunded commitments could increase concerns about borrowing. Tax increases may generate revenue, but they can also affect household finances and business investment.
For Burnham and Healey, the second nightmare is that the cost of supporting the economy and servicing existing debt could limit their ability to deliver the improvements they have promised.
Nightmare Three: The Budget’s promises collide with financial reality
The third challenge is the gap between what the government wants to achieve and what it can realistically afford.
Burnham has made commitments on living costs and public services, while Healey must ensure that the Budget remains consistent with the government’s fiscal rules. At the same time, there are competing demands for investment, including pressure to provide more funding for defence.
A report by the Financial Times, citing the Institute for Fiscal Studies, warned earlier in October that spending pressures could leave a gap of approximately £35 billion in government plans by 2030–31. The estimate reflects several pressures, including public-sector pay, health spending, inflation and defence ambitions. It is a projection rather than a confirmed immediate shortfall, and its scale depends on the assumptions used.
Nevertheless, it illustrates the difficult decisions facing the Treasury.
If ministers want to preserve existing public services while increasing spending in areas such as defence, they must identify where the additional resources will come from. Options include raising revenue, finding savings elsewhere, changing the pace of planned spending increases or accepting a smaller financial buffer against unexpected shocks.
Each option carries risks.
Tax increases could generate additional money, but they may conflict with the government’s commitments and place further pressure on households and employers. Spending reductions could help protect the public finances, but they may provoke opposition from affected departments, public-sector workers and Labour MPs.
Additional borrowing could finance investment, but it would not remove the need to demonstrate that the government’s debt trajectory is sustainable.
Defence spending adds another layer of complexity. Healey previously served as defence secretary, and the debate over how quickly Britain should increase its defence budget has already created political tension. The government must reconcile its security commitments with the financial resources available to meet them.
Welfare spending and pensions are also part of the longer-term calculation. The costs of health-related benefits and pensioner support are projected to rise, placing additional pressure on public expenditure. Decisions in these areas can be politically sensitive because they directly affect people’s living standards and financial security.
Healey’s challenge is not simply to announce a Budget that balances on paper. He must provide a credible explanation of how the government intends to fund its priorities over time, including what will happen if economic growth disappoints or borrowing costs remain elevated.
What the Budget means for ordinary people
For households, the most important question is whether the Budget will make everyday life more affordable.
People want to know whether they will receive help with energy bills, whether taxes will increase and whether public services will improve. Homeowners are concerned about mortgage renewals, while pensioners and low-paid workers want reassurance that their incomes will keep pace with essential expenses.
Businesses also need clarity. Employers facing higher wages, energy costs and financing expenses must decide whether they can invest, recruit or expand. Sudden changes in taxation or government policy can complicate those decisions.
The government will therefore be judged not only on the measures it announces but also on whether those measures produce tangible results.
Targeted support could help the most vulnerable households, while measures that encourage productivity and investment could improve the economy’s longer-term prospects. But neither approach offers an instant solution to all the pressures confronting the Treasury.
The updated economic and fiscal forecasts due alongside the Budget will be particularly important. They will help determine how much financial flexibility Healey has and whether the government needs to change its plans to meet its fiscal rules.
A defining test for Burnham and Healey
The three nightmares facing Burnham and Healey are closely connected. Higher food and energy prices reduce household purchasing power, rising mortgage costs put further pressure on family finances, and increased government borrowing costs make it harder to fund support and public services.
There is no single decision that can resolve all three problems. The government must decide which households need the most immediate help, how to maintain confidence in the public finances and how to support sustainable economic growth.
The October 28 Budget will provide an important indication of how ministers intend to approach those competing priorities. It will also reveal how much room the Chancellor has to fulfil the government’s promises without resorting to measures that create further economic difficulties.
For Burnham, the challenge is to demonstrate that his commitments can translate into improvements that people actually experience. For Healey, it is to show that the financial plan supporting those commitments is credible.
Ultimately, the success of the Budget will depend on more than its headline announcements. Households will want to see whether their bills become more manageable, businesses will look for greater certainty, and financial markets will examine whether the government’s plans add up.
The pressure is considerable, and difficult choices may be unavoidable. The key question is whether Burnham and Healey can provide meaningful relief today while building a financial foundation capable of supporting Britain in the years ahead.