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UK Spring Budget 2023: Further Government Support and A Milder Economic Downturn but Fiscal Risks Persist

In its Spring Budget 2023, the UK government has presented measures aimed at providing further help to households to ease cost-of-living pressures, supporting economic growth in the medium term, and reducing the government debt ratio over the longer term. At the same time, the economic and fiscal outlook has improved compared with the forecasts presented in the Autumn Statement 2022. In DBRS Morningstar's view, despite the improved outlook, risks to the economy and the fiscal position remain significant, amid still high inflation and monetary tightening, in view of the electoral cycle, and in light of recent financial stresses. In this commentary, we take a look at the revised forecasts, the main fiscal measures of the Spring Budget, and the risks to the fiscal outlook.

Key Highlights
• The economic downturn in the UK is now expected to be milder in 2023, thanks to lower gas prices and interest rates.
• The fiscal position has deteriorated less than expected, leading the government to adopt additional support measures.
• The forecasts point to a lower-than-expected public debt ratio, but the trajectory of gas prices and interest rates poses some risks to the outlook, in addition to the electoral cycle.

“Although the economic and fiscal outlook has improved, we continue to see significant downside risks, including another energy shock, higher than expected interest rates, or prolonged volatility in financial markets,” said Adriana Alvarado, Senior Vice President in the Global Sovereign Ratings Group.