Chancellor John Healey has warned that the autumn Budget on 28 October will be tough, as the economic fallout from the US-Iran war continues to squeeze the UK's public finances. He told the Financial Times that the conflict is pushing up inflation, dampening growth and raising borrowing costs, following a sharp rise in government borrowing this week that reflected lender concerns about the war's inflationary impact. This matters because it threatens to erode the fiscal headroom Rachel Reeves built up in her previous Budget through tax rises and spending cuts, potentially constraining plans to tackle the cost-of-living crisis.

Healey said he and the prime minister remained "in lockstep" on meeting the fiscal rule requiring the Budget to reach surplus, excluding investment, by the end of the Parliament, though he declined to specify how much buffer he intends to maintain. He also confirmed the UK would meet its NATO commitment of 3.5% of GDP on defence spending by 2035, details of which will come at next year's spending review, but he has faced Conservative criticism for not recommitting to 3% by 2030. Separately, Healey announced changes to the Treasury's "green book" rules, lowering the discount rate from 3.5% to 3%, a move designed to make it easier to justify long-term investment in regional projects such as schools and roads, ahead of a wider economic speech he is due to give on Monday.