The Office for Budget Responsibility (OBR) lowered its near-term growth forecasts but the government still expects to meet its fiscal rules, with £15 billion of headroom at the end of the forecast period.
The headline growth revisions:
2026 GDP: 1.2% vs 1.1% in March
2027 GDP: 1.0% vs 1.6% in March
2028 GDP: 1.6% vs 1.6% in March
2029 GDP: 1.8% vs 1.5% in March
2030 GDP: 1.7% vs 1.5% in March
2031 GDP: 1.6%
The sharp downgrade to 2027 is the standout number, with growth now expected at just 1.0%. The revisions further out are more constructive but that's the usual tactic.
On the fiscal side, the numbers show a deterioration in the debt outlook:
2026/27 public sector net financial liabilities: 83.2% of GDP vs 82.6% previously
2027/28: 83.8% vs 82.9%
2028/29: 83.8% vs 82.9%
2029/30: 83.1% vs 82.2%
2030/31: 82.3% vs 81.1%
2031/32: 81.7%
The OBR also forecasts a budget deficit of 4.2% of GDP this year, narrowing to 3.4% next year. Public sector net borrowing is projected at 1.8% of GDP in 2030/31, compared with 1.6% in the March forecast.
Healey said the government will spend an additional £14 billion on debt interest this year, underscoring the damage from higher global borrowing costs.
The chancellor ruled out broad-based tax increases and deep cuts to public services, while pledging to maintain the government's fiscal rules. Some of the remaining fiscal headroom will be used to absorb the impact of the Iran war.
The £15 billion buffer is substantially below the £23.6 billion projected in March, but is broadly in line with the £15 billion expected in a Reuters poll of economists.
The market reaction has been relatively calm so far, with the UK 10-year gilt yield extending its decline to 5.34%, down 1.4 basis points on the day.
The bigger picture is that Healey has managed to preserve some fiscal breathing room despite a much more challenging environment. However, £15 billion isn't a particularly large cushion for an economy facing weak growth, elevated debt-servicing costs and considerable geopolitical uncertainty.
The bond market is likely to take some comfort from the commitment to fiscal discipline, but the downgrade to 2027 growth is a reminder that Britain has little room for economic disappointment.
For sterling, the budget looks broadly neutral for now. There is no obvious fiscal shock to drive a selloff, but there is also little here to materially improve the UK's growth outlook. It was last down 16 pips to 1.3284 on the day and little changed since the budget headlines.
This article was written by Adam Button at investinglive.com.
Source: Investing Live - News
