In its newly published EFO for March, the OBR has increased its projection of the budget deficit for the current year by £9.8 billion. It has also altered its assumptions for the key UK economic factors:
Growth is now projected to be 1.0% for 2025, half the previous projection. However, thereafter growth is projected to be higher in every future year of the forecast, with each of the three years from 2027 projected to have 0.2% higher growth.
Average inflation in 2025 is projected to be 3.2% (formerly 2.6%) and 2.1% in 2026 (down from the previous 2.3% projection).
Market gilt rates are projected to be 4.5% in 2025/26 and 4.7% in 2026/27, 0.4% higher for both years than in the October 2024 EFO.
Without the various spending announcements made in the Spring Statement, the Chancellor’s headroom against her main fiscal target would have shrunk by £14 billion, meaning she would have missed it by £4.1 billion. Including the announced changes has allowed the OBR to restore the headroom figure to its October 2024 level of £9.9 billion. As the OBR notes, “This remains a small margin against the risk of further shocks to interest rates, productivity, or global trade.”
£9.9 billion of headroom disappeared over the last five months and there are now probably another seven months until what looks to be another important Budget.
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