The Chancellor John Healey has been warned by economic analysts and business leaders not to announce large public sector pay rises or increase the minimum wage in his first Budget on 28 October. With bond markets experiencing a global sell-off that has pushed UK borrowing costs to 5.4% on 10-year gilts (close to 2007 crisis levels), and inflation already rising due to surging oil prices, analysts argue that wage increases could fuel further inflation rather than support economic growth.

The National Living Wage currently stands at £12.71 following an April increase, and business organisations and economists warn that another sharp rise could pile pressure on struggling employers whilst signalling the Government is not serious about controlling inflation. The Treasury is reportedly considering reducing its fiscal headroom from a forecast £23.6bn cushion, but economists suggest that moderating minimum wage increases could both help employers and provide a positive signal to bond markets.