UK: Fiscal buffer builds as pressures grow – Deutsche Bank

Deutsche Bank’s Chief UK Economist Sanjay Raja describes the UK Spring Statement as largely uneventful, with only a handful of new measures and around GBP 6bn in extra borrowing by 2030/31. He notes a marginally better borrowing outlook and higher fiscal headroom, but warns that recent events, energy support demands and defence spending pressures could test tight spending plans by the Autumn Budget.

Spring Statement seen as fiscal non-event

"As expected, today's Spring Statement was largely a non-event. There were no big fireworks. New policy announcements were contained to already announced measures."

"After delivering 75 policy measures in the autumn, Chancellor Reeves stuck to her commitment to avoid any new major policy measures. In total, spending decisions taken in the Spring Statement were projected to add up to GBP 6bn in borrowing by 2030/31."

"As a result, borrowing is expected to track lower over every single year of the forecast horizon beyond 2026/27 (compared to the Autumn Budget), driven primarily by lower net debt interest payments and non-interest receipts. In even better news, public sector net debt is expected to be around GBP 22bn lower per year across the OBR's (Office for Budget Responsibility) five-year forecast horizon."

"On her primary headroom, the Chancellor raised her fiscal buffer to GBP 23.6bn in 2029/30. On her secondary rule, the Chancellor's headroom picked up to just over GBP 27bn."

"Based on current market conditions, higher inflation and weaker spending would dominate near-term projections, leaving the Chancellor with GBP 5bn less in headroom. Calls for support on energy prices will only increase from here, alongside calls to ramp up defence spending. Tight spending envelopes will also be called into question. "

"While the Chancellor may have built up a little bit more of a buffer over the last two fiscal events, pressure to spend some of her fiscal space will likely come to a head in the Autumn Budget."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)