- Office for Budget Responsibility lowers growth forecasts to 1.1% for 2026 but upgrades the outlook in 2027 and 2028 to 1.6%.
- Public sector net borrowing is set to fall from 4.3% this year, decreasing to 1.8% in 2029–30.
- But the forecasts don’t take into account the impact from the jump in energy prices and turbulence caused by the escalating war in Ukraine.
- The FTSE 100 remained around 2.6% lower and UK 10-year gilt yields continue to hover around 4.4%.
Susannah Streeter, Chief Investment Strategist, Wealth Club
“The Chancellor was trying to project a ‘keep calm and carry on’ message, but market turmoil continued during her speech, with UK borrowing costs having shot up and London’s FTSE 100 deep in the red, staying around 2.6% lower. Although there was a nod to the current turbulence, the forecasts don’t take into account the rapidly developing situation in the Middle East. So even though Rachel Reeves championed forecasts of a further fall in inflation, there’s a clear and present danger of the price spiral taking off again due to escalating conflict with Iran.
The Office for Budget Responsibility downgraded growth for this year to 1.1% but upgraded it slightly for the following years. This appeared to help sterling recover slightly against the dollar, but the moves were limited given that big risks have crept back into the outlook.
The potential wiggle room identified in the OBR’s latest projections also risks being swallowed up by the economic repercussions of war in the Middle East. Hopes for an interest rate cut later this month are being dramatically scaled back due to the spike in energy prices. It means servicing the UK’s debt pile could prove more costly than current forecasts suggest. Already high energy costs have been blamed for holding back growth, and the big worry is that if planned support for industries is not brought forward, more firms could go to the wall, potentially pushing the UK’s fragile recovery back into reverse.”
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