Exclusive by @flacqua Bank of England governor Andrew Bailey tells Bloomberg TV a second interest rate hike is “more likely than not” if the Iran war continues He warns a jump in inflation is “quite baked in at this point” even in a scenario where there is a rapid deescalation If energy prices go back to “where they were” before this week’s sharp drop in oil prices, a “second rise is probably more likely than not,” Bailey says This is now the central risk to Andy Burnham’s government. If Trump escalates again in Iran, the next year starts to look very difficult for the PM. Even if he doesn’t Britain isn’t out of the woods Traders now put the odds of back-to-back interest rate rises in December at 50-50 On Bloomberg TV free to watch here:

NEW: UK Foreign Secretary @Ed_Miliband has told Russian Foreign Minister Lavrov that he and his government are responsible for killing innocent civilians, condemning Thursday’s attack on Dnipro railway station Speaking directly to Lavrov at a meeting of G20 foreign ministers in the US today, Miliband said: "Let me say this directly to the Russian Foreign Minister: we all know who the aggressor in this war is. Let's talk about what happened at Dnipro railway yesterday. Only yesterday your drones attacked and killed 15 people. And there are countless examples like this of you killing innocent civilians throughout this war. We all know you are the aggressor. We all know you started this war four and a half years ago with the full scale invasion of Ukraine. " "And Putin thought then he would win this war easily. But you are are not winning this war. Thanks to the courage of the Ukrainian people and the solidarity of countries round this table, you are not winning. If you had the courage to tell the truth and to do what is right you would tell Putin that he is not winning this war and will not win."

Exclusive: Saudi Arabia requested further defensive support from the UK ministry of defence in the weeks before the deadly Houthi attack on Riyadh airport, but ministers didn’t sign off on it It’s led to Saudi frustrations with the lack of UK support

Exclusive: Andy Burnham has tasked Louise Casey and John Healey with plugging a multi-billion pound hole in his social care plan, after aides warned it could be delayed until the end of the next decade The Treasury estimates that changes to the state pension outlined by Burnham will only raise around £5 billion a year by the end of the next parliament in 2034, according to people familiar with the matter That is well short of what’s needed to pay for a free-at-the-point-of-use personal care service. The £15b a year savings from scrapping the triple lock only arrive in 2040 Burnham has asked Casey and Healey to look at how to fill the funding gap until then. He’s ruled out tax rises and more borrowing Currently, there is no plan to pay for the care policy before 2040, government officials told Bloomberg. Without one, the implementation would have to be delayed to the late 2030s, they said Another problem is that Burnham will simultaneously have to raise tens of billions of pounds to meet Britain’s NATO obligations to spend 3.5% of GDP on defence by 2035 The IFS has said that in order to meet the commitment the UK will need to find an additional £25 billion each year by 2035 in today’s terms That leaves tens of billions of pounds of extra spending in the next parliament that will need to be funded Burnham suggested in an interview with @BethRigby on Wednesday that the care plan could be delayed or phased to make it affordable

Exclusive with @AlexDooler @DNair5 UAE officials have warned the UK government that the severity of Man City’s punishment could undermine their appetite for future grand-scale commitments in Britain, according to people familiar with the matter They consider the Premier League’s actions to have an influence on the bilateral state relationship, the people said, asking not to be identified discussing undisclosed information The extraordinary pressure comes after Andy Burnham faced criticism, including from within government, for saying Man City’s Abu Dhabi owners should not be disqualified specifically because of the investment they bring to Britain

NEW by @PhilAldrick There is an £85 billion black hole in Andy Burnham’s spending plans The government says the changes to the triple lock will save £15 billion by 2040, or £11 billion in today’s money, and that he will not raise taxes to pay for social care That doesn’t come close to covering any realistic estimates for the new free-at-the-point-of-use national care service Burnham has promised “Burnham’s sums do not seem to add up,” said Kathleen Brooks, research director at XTB And there is a bigger threat The interest Britain is paying on its £2.9 trillion debt pile is rising automatically as cheaper issuance in the past rolls off and is replaced by expensive new borrowing Within a decade, if borrowing costs remain where they are, the government will pay £85 billion a year more in today’s money just to hold the debt burden steady at 94% of GDP, according to the National Institute of Economic and Social Research

Andy Burnham has a big diplomatic to-do list in New York - persuade Trump to give Ukraine Patriot air defence missiles and up pressure on Putin - lobby him to deescalate in Iran, while urging others to follow the UK in helping Saudi against Houthis - carve out what he calls a “sweet spot” for the UK on AI amid criticism that he doesn’t have a clear policy position - convince von der Leyen to take a less hostile approach on the EU’s Made in Europe policy Huge amount of work for a PM who wanted to focus on domestic issues but is finding they are at the whim of global events With @ChaplainChloe in NY:

Exclusive: UK household energy bills are forecast to jump *by about 25%* in January as the Iran war drives up gas and electricity prices, according to analysis by Bloomberg Economics The coming price spike means UK inflation could climb above 4% next year, double the BoE target, the analysis finds The Ofgem energy price cap is expected to rise by about £427 to around £2,150 a year for the average household, according to the forecasts This would push bills close to the £2,500 cap brought in by the government following Russia’s full-scale invasion of Ukraine in 2022 It’s a major threat to Andy Burnham’s pledge to be the cost-of-living prime minister Story by @EamonFarhat:

EXCLUSIVE: Andy Burnham is considering requests from Saudi Arabia for a range of military support to counter attacks from the Houthis, as the UK fears a “catastrophic” economic hit from a new front in the Iran war. The Saudi asks include operational support for its military to repel the Houthis’ push along the Red Sea coast toward the Bab el-Mandeb Strait, a key trade chokepoint, and help to defend against strikes on its oil infrastructure, sources tell Bloomberg. Burnham has agreed to send British military advisers to Saudi Arabia in response to the requests, sources say. It’s unclear whether he’s willing to approve the other asks, which haven’t been disclosed by the UK government. The Foreign Office and MoD declined to answer questions. Burnham is facing one of his first major foreign policy and economic dilemmas since he became PM. Britain is determined not to get drawn into the conflict, not least because it didn’t support Trump’s war on Iran. Yet the crisis poses serious challenges ahead of next month’s budget. Burnham has been advised by his officials that if the Houthis take control of the Bab el-Mandeb Strait it will have a “catastrophic” impact on international shipping and provide another hit to the global economy through a further spike in the oil price and inflation, the sources said. The Houthi attacks have sent Brent crude toward $110 a barrel. Gilts extended a drop today as money markets added to bets on Bank of England interest rate rises off the back of inflation fears. Traders now fully price five quarter-point BoE hikes by the end of 2027, an outcome that would badly complicate the PM’s key pledge to reduce the cost-of-living. The Treasury is also worried that the recent escalation is taking place as the OBR prepares its economic and fiscal forecasts for the budget. John Healey had been hoping for a market reprieve during the assessment window. Instead it’s going further in the wrong direction and potentially leaving the chancellor with even more of a fiscal hole. Under Rishi Sunak the UK hit Houthi targets in Yemen to combat disruption in the Red Sea. Under Keir Starmer it deployed Sky Sabre air defences to help Riyadh.

NEW with @AlbertoNardelli — European and US officials are resigned to Russia’s war in Ukraine continuing into next year, acknowledging the latest Witkoff-Kushner peace initiative made no headway with Putin — Putin is intent on stepping up attacks on Ukraine through the winter, testing its resistance and the resolve of Kyiv’s allies, according to European officials familiar with the matter — Putin showed no sign of softening his positions despite recent US signalling to Moscow that new ideas are needed to revive stalled peace talks, the officials said — Russia’s plan for the next six months is to intensify strikes on Ukraine’s power and heating infrastructure to try to make life unbearable for civilians, and to step up hybrid attacks and political interference in Europe to try to undermine support for Kyiv, one of the people said — Putin has bet that he can emerge next spring with a stronger hand while keeping Russia’s increasingly strained economy above water, the person said. Trilateral talks may resume after Russia’s State Duma elections but are unlikely to move the dial. Serious negotiations are unlikely until at least next year, said another person — Putin used the Witkoff-Kushner visit to project strength domestically ahead of the Duma elections, one of the people said. He kept the US delegation waiting until evening before meeting them, leaving Witkoff and Kushner to have an hours-long lunch with Putin envoy Kirill Dmitriev at a Moscow restaurant, the person added — Ukraine’s allies must respond by prioritising supplies of air-defence interceptors to help Kyiv defend itself, the people said. The UK and others began to do so today, committing to providing Ukraine with more Patriot missiles before winter

Gilts are extending their selloff this morning, further raising UK government borrowing costs and threatening John Healey’s headroom The 10 year yield is up 7 basis points today to 5.29%, the highest since August 2007 You’d imagine this will dominate Andy Burnham’s first PMQs

All noises coming from government tonight suggest Andy Burnham will spend 3% of GDP on defence by 2030 - Bloomberg reported this morning that the military still expects John Healey to commit to that target at next year’s spending review, despite suggestions of backsliding - Healey also told the Times today that he wouldn’t be a hypocrite, implying the same thing - asked about the 2030 target date in the Commons this afternoon, Burnham said he appointed Healey “precisely because” of his commitments on defence, strongly suggesting he supports the target - it appears these developments leave little wiggle room and that Burnham and Healey are planning for 3% by 2030 in the spending review - that would be a big policy that may come to define Burnham’s premiership. It’ll also cost some £15b extra per year and mean spending cuts in other departments and likely tax rises - also in a marathon three-and-a-half hour Commons session this evening Burnham signalled he is open to nationalising the water industry - he said he’s looking at “all possible solutions” and called water a “leaking monument” to the failures of privatisation, pledging to set out a plan for the “public control” of essential services later this year

Exclusive: The UK military still expects John Healey to commit to spending 3% of GDP on defence by 2030, despite accusations the chancellor is backsliding on his past ambitions to hit that target. Senior figures in the military were told by the Treasury weeks ago that it would not be possible to announce the target at the Oct. 28 budget and that the decision would be deferred until the multi-year public spending review next year. Nonetheless, following conversations with Healey, it is their expectation that a 3% by 2030 target will be announced at that review, the people said. It would cost around £15 billion extra per year. One of the people said the military understands the Treasury’s difficulty in finding more money for defence at a time when the public finances are stretched. While they would have preferred the target to be announced sooner, they said they would welcome the commitment being made next year. Another of the people said they didn’t think it would be possible for Healey to backtrack given his determination to secure the 2030 target date while he was defence secretary. His resignation letter to Keir Starmer leaves no wiggle room: “I am certain that a headmark date for 3% of GDP on defence in 2030 is what Britain must set.” Healey said in an interview with @katyballs @MaxKendix today that defence would be “central to the spending review” and that he wouldn’t be a hypocrite over his past commitments.

NEW: A global bond selloff on Iran means Andy Burnham and John Healey face higher borrowing costs and an increased likelihood of interest rate rises, posing a major challenge to their efforts to alleviate the cost-of-living The UK 10-year gilt yield is set for its biggest one-day jump since mid-May, up 15 basis points to its highest since 2008 The 30-year yield is at its highest since 1998 The odds of a quarter point Bank of England interest hike coming in November have risen to almost 70% A second hike is more than fully priced in for next March and seen as 80% likely to come by February That’s the difficult economic backdrop as Burnham tries to extend his feel-good summer in his Commons appearance today

New: Andy Burnham has performed his first u-turn since becoming PM He told reporters on Monday he was looking at raising the personal tax allowance, after proposing the tax cut in an interview with the Times at the weekend Tonight aides indicated he won’t go ahead with it

EXCLUSIVE: Andy Burnham has approved the use of British military bases by the US for what the UK calls defensive strikes against Iran, in a continuation of Keir Starmer’s policy even as Trump ramps up his war. Starmer chaired a COBR meeting on Friday to discuss UK policy following the resumption of US operations and amid fears of an escalating conflict. Ministers at that meeting decided to continue the existing policy that bases at Diego Garcia and RAF Fairford could be used by US planes countering the Iranian missile threat and sites used to target the Strait of Hormuz, sources say. Burnham, who became PM on Monday, was informed of the discussion and agreed with the decision taken, sources say. He will continue the previous government’s policy when it comes to approving UK bases for so-called defensive US strikes, they say. It means British bases are likely to be used for some of the current round of American operations. The decision emerges after the 10th day of renewed US action. US Central Command said it targeted Iranian military command centers, launch sites and air defences overnight. British officials have nonetheless been concerned about Trump’s threats to strike bridges and power plants. It is likely to provoke criticism from left-wing Labour MPs, the Green Party and the Liberal Democrats who have argued use of the bases makes the UK complicit in war crimes.