UK Spring Statement: small fiscal margins restored

The deterioration in growth forecasts along with higher borrowing costs have left the government with £4 .1 bn in deficit in 2029-30 under the government’s plans from October. Following a downward revision to GDP growth this year and with the fiscal buffer exhausted , the finance minister Reeves has had no other choice than to make fiscal changes to stay on track to meet her non-negotiable goals . Policy changes, incl. welfare reforms and reductions to day-to-day departmental spending, have helped to restore the fiscal headroom the Chancellor had in October. Yet, the OBR cautioned that this was a small margin in the face of risks of further shocks to interest rates, productivity and global trade. T he Office for Budget Responsibility forecasts suggest a worsening outlook for the public finances compared to October given downward revision to this year’s growth, resulting in a cumulative growth around half a percentage point lower than in autumn . While the government managed to restore its fiscal headroom against the current budget (£9.9bn) and public sector net financial liabilities (£15.1bn), borrowing is projected to be £3.5bn higher and debt 0.6% of GDP higher at the end of decade than predicted in October. Meanwhile, t he general government gross debt continues to be on track to increase to 105.9% by the end of the decade from 101.3% this year. Tax as a share of GDP is set to rise from 35.3 % this year to a historical high of 37.7 % in 2027-28. The Spring Statement has confirmed the government’s commitment to its non-negotiable rules. Still, borrowing and debt will be higher by the end of the decade than previously forecast. Also, the fiscal headrooms are very small suggesting that the debt could ratchet up significantly if the economy were hit by shocks.