Bank of England Governor Andrew Bailey has warned that governments may find themselves with few options if the economy slips into recession again, as weak growth and a series of severe shocks erode their capacity to respond.

On the day of his speech, falling bond prices once more stirred concerns about energy prices and France's budget pressures. Bailey said fiscal policy must convince markets of its credibility.

"Higher borrowing costs and weaker economic growth are pushing up debt as a share of GDP, while at the same time calls for increased spending are growing louder. If markets begin to doubt the direction of fiscal policy, yields will rise further, creating a counterproductive effect," Bailey said.

Bailey noted that while governments can typically cushion a severe recession by borrowing more and then rebuild fiscal space once the economy recovers, this becomes far more difficult in a turbulent economic environment.

"When shocks become more frequent, potential growth weakens, and successive shocks drive government debt levels higher, making this path much harder to sustain," Bailey said at an event in Turkey.

Although the UK has been less affected by investor panic than some other European economies, it still faces a precarious fiscal position ahead of the Labour government's budget announcement on October 28.

UK Prime Minister Andy Burnham is under pressure to provide support for households and businesses struggling due to the Middle East conflict.

However, surging borrowing costs have already weakened the response capacity of Chancellor John Healey, with government bond yields near their highest levels in decades and fiscal room for maneuver already very limited.

Bailey said fiscal policy must "aim for stability and be seen as credible by markets."