Fiscal Policy Adjustments
Reeves aims to generate an extra £1 billion by addressing tax evasion, with no further tax increases indicated. The OBR revised borrowing estimates upwards, projecting an increase of £3.5 billion by decade’s end.
Expected net financial debt is now 82.7% of GDP for 2029/30. While a budget surplus for 2028/29 has been adjusted to £7.1 billion, earlier forecasts estimated a surplus of £9.3 billion. CPI forecasts have also been updated, with expectations set at 3.2% in 2025 and 2% from 2027 onwards. The revised outlook shows an additional borrowing requirement of £47.5 billion by 2029/30 compared to previous forecasts.
Reeves’ updated projections indicate that fiscal headwinds have worsened since October. The OBR’s assessment highlights that the long-term economic trajectory remains intact at an average of 1.75% annual growth, but near-term pressures are mounting. That 1.0% figure for this year is far from ideal, and while stronger expansion is expected over time, short-term constraints must be carefully watched.
The reference to possible trade tensions holds weight. A tariff increase capable of knocking up to 1% off GDP is no small matter. If global policies shift unfavourably, projections could deteriorate further. Any materialisation of these risks could bring volatility, which those involved in leveraged markets should not overlook.
Reeves’ proposal to generate an additional £1 billion by targeting tax evasion is a clear indication that fiscal adjustments are being sought through enforcement rather than direct tax increases. This will be welcomed in many quarters, but the upward revisions in borrowing expectations tell a less encouraging story. A £3.5 billion increase by the decade’s end implies that underlying fiscal pressures are proving harder to contain.
Economic Uncertainty And Market Response
The updated borrowing projections are instructive. Net debt expectations at 82.7% of GDP by 2029/30 show that while the trajectory appears stable, it remains historically high. The smaller-than-anticipated surplus for 2028/29—lowered from £9.3 billion to £7.1 billion—suggests that fiscal consolidation efforts are encountering resistance. The additional £47.5 billion borrowing requirement by 2029/30 underscores just how much the outlook has softened since previous forecasts.
CPI projections indicate a steady decline towards 2% from 2027 onwards, following a forecasted 3.2% in 2025. While this suggests inflationary pressures will ease, it also means that expectations for rate adjustments will shift accordingly. If inflation falls as expected, monetary policy could take a different course, influencing short-term interest rate projections. That alone will shape how market participants assess risk exposure in the coming months.
Government debt concerns, revised growth forecasts, and external trade risks all factor into strategic considerations. Each shift, whether in borrowing levels or inflation trends, influences expectations around future rate moves and credit conditions. The fiscal tightening measures outlined by Reeves offer some reassurance that no drastic tax increases are planned, but the need for increased borrowing sends another message altogether.
Even minor deviations in these economic indicators could alter market sentiment quickly. The figures now set in place form the basis for expectations, yet external shocks or policy shifts could lead to rapid reassessments. While some adjustments suggest stability, others point to growing financial constraints that cannot be ignored.
