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OBR Signals Productivity Downgrade, Tightening the Squeeze on Reeves’s November Budget

Economists warn a small cut could create a multibillion‑pound gap, increasing the likelihood of tax rises at the November budget.

British Chancellor of the Exchequer Rachel Reeves attends the annual Mansion House dinner in London, Britain, July 15, 2025. REUTERS/Isabel Infantes/File Photo
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Overview

  • The Financial Times reported, and Reuters relayed, that the fiscal watchdog has indicated to the chancellor it will lower productivity assumptions, while the Treasury declined to speculate.
  • The OBR’s March forecast left Rachel Reeves with £9.9 billion of headroom under her fiscal rule, which has already been dented by about £6 billion after reversals on welfare and winter fuel plans.
  • J.P. Morgan estimates a 0.1–0.2 percentage point productivity cut would worsen the fiscal position by roughly £9–£18 billion a year, with NIESR warning the gap could reach around £50 billion and Oxford Economics flagging a hit consistent with about £20 billion of action.
  • The OBR is due to deliver updated forecasts next month ahead of the 26 November budget, and a downgrade would likely force additional revenue measures or spending cuts to meet the rules.
  • Political lines are being drawn as government figures point to inherited weaknesses and the opposition blames Reeves’s stewardship, while a Bank of America report highlights a sharp investor pullback from UK assets.