UK OBR Forecasts:
- Sees GBP 17.8bln less borrowing between FY25/26 - FY30/31 vs November.
- Bank rate expectations and gilt yields have fallen slightly since the November forecast.
- Scenario where UK equity prices fall by 15% in 2026/27 would leave government borrowing GBP 15bln higher in 2027/28.
- Government's commitment that defence spending should reach 3.5% of GDP by 2035 could cost around an additional GBP 40bln in today's money.
- Expect weak labour market demand to continue in the near term.
Inflation
- 2026: 2.3% (prev. 2.5%, BoE exp. 2.0%)
- 2027: 2.0% (prev. 2.0%, BoE exp. 1.8%)
- 2028: 2.0% (prev. 2.0%)
- 2029: 2.0% (prev. 2.0%)
- 2030: 2.0% (prev. 2.0%)
Context
The UK Office for Budget Responsibility (OBR) has adjusted its borrowing forecasts downwards, reflecting a slight improvement in fiscal outlook, but maintains a cautious stance with ongoing weak labor market demand. With inflation projections remaining relatively stable yet above Bank of England expectations for 2026, this could influence monetary policy considerations while adding complexity to gilts and GBP movements in the coming sessions.
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