The Bank of England has warned that fears of another Labour tax raid are already impacting the economy as it kept interest rates on hold at 4pc.
Threadneedle Street's latest survey of businesses found widespread fear of another slew of tax rises in the upcoming Budget. Economists have warned that Rachel Reeves must find anywhere between £20bn and £50bn in either tax increases or spending cuts to maintain her fiscal plans.
The Bank's agents, who speak to business leaders across the country, described "consumer caution" as a "key theme", with "some now worrying about potential impacts on confidence from the upcoming autumn Budget".
Officials warned the economy was deteriorating and said the jobs market had ground to a halt, with two of the nine members of the Monetary Policy Committee (MPC) calling for an immediate rate cut to support growth.
However, Governor Andrew Bailey said: "Although we expect inflation to return to our 2pc target, we're not out of the woods yet so any future cuts will need to be made gradually and carefully."
Mr Bailey blamed higher inflation partly on government policy. In an open letter explaining why it was almost double the Bank's target at 3.8pc in August, Mr Bailey cited "the increase in employer National Insurance Contributions (NICs) and pay growth in sectors with a large share of employees at or close to the National Living Wage (NLW)."
The Bank has previously warned that recently introduced net zero packaging taxes are also pushing food prices higher, with inflation on supermarket shelves expected to continue for the rest of this year.
Bosses warned that Ms Reeves's inheritance tax raid on farmers and entrepreneurs was having a chilling effect on the economy too.
The Bank's agents said: "Family and individually owned private businesses are concerned about changes in inheritance tax laws making them less willing to invest".
The Chancellor said ministers would do "everything in our powers to keep costs down and lower them", adding that she had ordered the Cabinet to look at ways to ease price rises.
Her comments raise the prospect of another fuel duty freeze, with Treasury officials also examining the idea of removing VAT on gas and electricity bills in a move that would save households about £86 a year at a cost of £1.75bn.
The Bank's policymakers held interest rates at 4pc on Thursday following last month's cut from 4.25pc.
In a highly anticipated move, the Bank also said it would scale back the sale of long-term debt amassed during lockdown and the financial crisis in a move that should ease pressure somewhat on Ms Reeves.