Iran war borrowing costs slash Chancellor Healey's Budget headroom NEARLY IN HALF, KPMG warns

From the Newshound archive · first published 21 September 2026.

Chancellor John Healey faces a brutal opening Budget after KPMG warned his fiscal headroom has been slashed from £23.6bn to roughly £12bn in just months, with tax rises or spending cuts now looking inevitable. The collapse is driven by a gilt market sell-off pushing up debt-servicing costs by around £9bn, with weaker economic growth and expected OBR downgrades accounting for the rest. The Budget is due on October 28.

KPMG attributes the sharp rise in long-term borrowing costs to inflation anxieties stemming from the Iran war, a surge that has rapidly eroded fiscal headroom.

With Labour committed to no tax rises on working people, Healey will be forced to consider other tax measures or cuts to public spending.

KPMG predicts interest rates will rise from 3.75% to 4% in November, piling further pressure on household budgets ahead of winter.