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2h ago

Healey’s First Budget Shrinks Growth Forecast and Cuts Fiscal Headroom

Higher energy prices and rising borrowing costs have reduced the government’s financial margin, forcing temporary help for households and delayed decisions on major spending.

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British Chancellor of the Exchequer John Healey presents the Financial Statement and Budget Report at the House of Commons in London, Britain, October 28, 2026. ©House of Commons/Handout via REUTERS
Britain's Chancellor of the Exchequer, John Healey, holds up the traditional red ministerial box outside No 11 Downing Street before departing to the House of Commons to deliver the first budget under Prime Minister Andy Burnham's government, in London, Britain, October 28, 2026. REUTERS/Hannah McKay
Chancellor of the Exchequer John Healey delivering his first Budget in the House of Commons. (Photo: House of Commons/Press Association)

Overview

  • The Chancellor delivered the autumn Budget on October 28 and the Office for Budget Responsibility cut UK growth for next year to 1% while raising 2027 inflation to about 3.4% and citing a roughly £14bn rise in debt interest costs.
  • Healey announced targeted short-term measures including a one-off £100 energy payment for about 20 million homes, an extension of the VAT relief on electricity, a 3.9% rise in minimum wages and a temporary increase in the bank surcharge.
  • The OBR scored the package and said fiscal headroom has been reduced to around £15bn for 2029/30 and warned ministers face an estimated £11bn gap to stop departmental day-to-day spending falling in the later years of the forecast.
  • Independent analysts including the IFS and the Resolution Foundation said the Budget’s small, temporary measures do little to boost growth and will leave household incomes squeezed, with real disposable income falling next year and barely higher by 2030.
  • Higher gilt yields and bigger debt‑interest bills mean the government will rely on next year’s Spending Review for firm choices on defence, welfare and departmental budgets, and markets will watch whether promised cuts or tax changes follow.