Mr Brooks said investors were demanding a higher premium for long-term borrowing amid growing uncertainty regarding the political and economic outlook for debt-laden countries.
“Initial conditions turn out to be massively important,” he said. “The benefits of responsible fiscal policy … have never been more apparent.”
While investor demand for British debt remains robust, with more than three buyers bidding for every bond on offer, economists said rising borrowing costs served as a warning to Andy Burnham.
The Prime Minister and Mr Healey are seeking to borrow more by exploiting flexibility in the fiscal rules introduced by Rachel Reeves, the previous chancellor.
The new Chancellor is exploring ways to boost investment at a time when rising prices and borrowing costs, driven by conflict in the Middle East, have already eaten into half of Mr Healey’s £24bn buffer to balance the books.
‘A warning sign’ to Healey
Exploiting flexibilities in the fiscal rules risks pushing up borrowing costs even further and adding yet more pressure to the public finances.
Simon French, the chief UK economist at Panmure Liberum, said: “This is a warning to the Chancellor on the risks of using the flexibilities in the fiscal rules to increase borrowing. It can be done, but at a cost, and quite a punishing one for future taxpayers.”
Economists warn that inflation could come close to 4pc by the end of this year, from less than 3pc today. This will add to pressure on the public finances and push up the cost of owning a home.
The Bank of England has signalled that interest rates will have to stay higher for longer to keep a lid on inflation, prompting mortgage lenders to push up the cost of consumer borrowing.
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