Unlock the publisher’s digest free
Roula Khalaf, editor -in -chief of the FT, selects her favorite stories in this weekly newsletter.
Chancellor Rachel Reeves is faced with the prospect of having to reduce public spending or increasing taxes after the British tax guard dog has kept lower economic prospects in private.
Preliminary forecasts for the Office for Budget Responsibility show that the tax room that Reeves had in October against its key budgetary rule was destroyed by factors including poor economic data, according to people familiar with the problem.
The forecasts, which were sent to the Treasury last week, could force the Chancellor to spray in more strict expenses by government services or find additional tax revenue in her spring declaration on March 26.
It occurs after a period of flat growth in the United Kingdom in parallel with an increase in government loan costs which have reduced the margin compared to the rule of Reeves, which stipulates that current expenses excluding investments are funded by the Tax revenues.
The first draft of OBR forecasts, which will be published in parallel with the spring declaration, reflects the developments of the economy since the October budget of Reeves, but not the impact of potential policy changes by it.
In October, OBR forecasts showed that Reeves had 9.9 billion sterling pounds of margin against its rule so that the current budget is balanced by 2029-30 – leaving its “almost no margin of work “, According to the Institute for Tax Studies, a reservoir reflection.
The new preliminary OBR forecasts suggest that the margin has been deleted, people have said familiar people with the issue. The gradient was reported for the first time by Bloomberg.
The forecasts of the tax guard dog should change because there will be four other sketches before the prospects are presented in Parliament on March 26.
Reeves will have the possibility of rebuilding a stamp in relation to the current budget rule via tax decisions and expenses it takes before the spring declaration.
But the forecasts of other organs, including the Bank of England, already indicate a difficult economic prognosis for the Chancellor.
The BOE has halved its growth estimate of 2025 last week, saying that it expected the economy to develop only three quarters of percentage this year – strongly below the prediction of the OBR 2%.
The Ernst & Young Item Club, another forecastist, predicted growth of only 1% in 2025.
BOE predicted growth of 1.5% in 2026, which is also below the last OB’s forecast of 1.8%.
Estimates of the potential OBR growth – the speed at which the economy can develop without triggering inflation, and a key contribution in its forecasts – are also more optimistic than those of other analysts.
While the OBR expects potential growth to be greater than 1.6% by the end of its forecast period, the proper estimate of the BOE is less than 1.5%.
In addition, the increase in golden yields since the October budget has further worked the margin of the head of Reeves, although a resumption on the bond market has attenuated part of the impact.
Analysts of Oxford Economics, a council last week, estimated that 9.9 billion pounds sterling of reeves high of height had been divided by two by the movements of the prices of the bonds.
A spokesperson for HM Treasury said: “Government’s commitment to budgetary rules and solid public finances is not negotiable.
“As previously announced, the next OBR forecasts will be presented in Parliament on March 26 alongside a Chancellor’s declaration. We do not start speculation on OBR forecasts. »»
An OBR spokesperson refused to comment.
