Andy Burnham has insisted he is prepared to take “difficult decisions” on the economy, after a former Bank of England chief economist said investors were worried about his willingness to cut spending.

Speaking on Tuesday, Andy Haldane, who has advised Burnham on the economy, claimed financial markets had grown wary of his economic plans and now considered his premiership a “traditional tax and spend socialist government”.

But the PM rejected this, adding that he would not take risks with the economy and had already made difficult choices since taking office.

It comes as recent rises to the cost of UK borrowing worsened the political options facing the government ahead of next month’s Budget.

Haldane said the prime minister’s was facing a “straight choice” between raising taxes and cutting spending at the yearly spending statement due on 28 October.

In an interview with LBC, he urged him not to raise taxes further, but said investors were questioning whether he was prepared to risk anger from Labour backbenchers by making reductions in public expenditure.

“The fiscal Achilles Heel of this government thus far has been its unwillingness and/or inability to cut public spending,” he told the radio station.

“Within financial markets, we’ve gone from the cautious optimism of the summer months to the studied scepticism of September. The market now suspects that this is a traditional tax and spend socialist government with better TikTok videos.”

Speaking during a visit earlier on Wednesday, Burnham conceded that next month’s Budget would be “challenging”, blaming the “situation in the Middle East” for rising inflation in recent months.

But he rejected Haldane’s characterisation of how markets viewed the government, telling broadcasters: “That doesn’t tell the story. We are not that.”

He added he had already taken difficult decisions on public spending, including “reprioritising” some government spending over the summer to pay for his early cost of living announcements, and scrapping the rollout of digital ID.

He added: “So it’s not the case that we aren’t going to take difficult decisions. We will take difficult decisions to make sure the economy remains on track.”

Burnham has recommitted to manifesto promises made by Labour at the last general election not to raise the main rates of income tax, VAT or National Insurance, significantly curbing his options to raise revenue.

At the same time, he has also pledged to stick to the previous government’s debt and spending targets, a task that will be made harder by recent increases to the cost of servicing the UK’s existing pile of debt.

There have been predictions that the rise, combined with a worsening economic backdrop from the Iran war, are likely to significantly thin the £24bn buffer against those targets he inherited from the Starmer government.

Since coming to office, Burnham has committed around £1.8bn towards cost of living interventions, some of which is due to be funded by reallocating money within the existing budgets of government departments.

But a proposal to fund a VAT cut on household electricity bills using money earmarked for the digital ID programme drew criticism from a Starmer ally, who pointed out that funding for that scheme had itself not been confirmed.

The prime minister has also promised extra defence funding promised by Starmer before his exit over the summer, although a decision on when to hit a target to spend 3% of GDP on the military has been left to next year.