Britain is not fully in control of its own future, from the rising cost of groceries to the soaring cost of government borrowing. Decisions made in Westminster matter, but the global situation is making things harder, especially because of the actions and words of one man: Donald Trump.
As John Healey prepares his plan for next month's autumn budget, the difficult economic conditions he must navigate can be traced back to the US president.
The US-Israel war on Iran is pushing up inflation, amid the most serious shock to oil and gas prices in the modern age. The resulting global financial market turmoil is adding to the debt servicing costs of governments worldwide, made worse by Trump's reckless fiscal policy and threats to interfere with the US Federal Reserve.
Last week brought a grim irony as Healey travelled to Coventry for his first big speech as chancellor on the same day that Jaguar Land Rover, whose headquarters are just down the road, announced 4,000 job cuts because of Trump's tariff policies throttling the car industry. The president's geopolitical posturing and steps to dismantle the post-second world war western security consensus are also adding pressure on Healey to increase defence spending.
In his speech, Healey did not directly name the source of these economic headwinds from across the Atlantic. But he was wistful about the timing of his appointment as chancellor.
“In our British democratic system, if you have the privilege to serve, you don’t get to choose: you don’t get to choose the time, you don’t get to choose the circumstances,” he said.
There are signs of resilience, though. Last week, the chancellor received a pre-budget boost from figures showing Britain's economy unexpectedly shrugged off the worst of the Middle East fallout to grow at a robust pace in July, helped by the rapid expansion of AI.
Far from sitting back and blaming the US for all the country's problems, the chancellor also recognises that Labour can take meaningful steps to cushion the blow and help rebuild confidence.
However, last week was still a bad one. The latest flare-up in the Iran war drove the oil price to $109 a barrel and fuelled a dramatic bond market selloff. As an open economy in the eye of the storm, the yield, in effect the interest rate, on 10-year UK government bonds, known as gilts, rose to almost 5.4%, the highest level for almost two decades.
The renewed bout of selling pressure in the financial markets could not have happened at a worse time for Healey.
History suggests that the Office for Budget Responsibility (OBR) may need to use the latest gyrations in markets to form the basis of its budget forecast. With this report informing the boundaries of the chancellor's tax and spending plans, Healey could find himself boxed in.
Back in spring, the Treasury watchdog used the market movements over the 10 working days to 30 January as the input for Rachel Reeves's spring statement, leaving roughly a month gap before her 3 March Commons set piece. For Healey, there are just over six weeks before his budget on 28 October.
