Low-key UK Budget kicks the can into 2027

The UK Budget presented recently was a low-key event aimed at keeping markets onside ahead of a more comprehensive overhaul of fiscal policy in 2027. The package of temporary cost-of-living measures will provide a small additional near-term boost to growth, however, we’d already planned to raise our forecast for 2027 due to the recent sustained strength of AI-intensive sectors.

The decision to run with lower headroom looks like a sensible compromise given the uncertainty over whether high gilt yields will persist and the likelihood that fiscal policy will be reshaped next year. We think markets will be comfortable with this decision, though we still have major doubts that the planned tax rises will deliver the scale of deficit reduction that the government hopes over the next few years.

A combination of limited detail, unaddressed challenges, and the length of time for any upside to show means that the devolution announcements will not lead us to revising our regional forecasts.

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