With no big changes expected in the fiscal forecasts on
3rd March, the Government's priority should be to
minimise policy uncertainty and double-down on boosting growth,
the Resolution Foundation said today (Thursday).
New analysis published by the Foundation today estimates that in
the three months since the Budget, news on the economy has been
small and offsetting. The current budget – the Government's
fiscal target – is estimated to be in surplus by just over £20
billion in 2029-30, around £1 billion lower than in November.
Growth was just 0.1 per cent in Q4 2025, below the 0.3 per cent
expected by the OBR, and inflation was 0.2 percentage points
lower than forecast. Lower net migration data will also increase
borrowing. Alongside small U-turns on inheritance tax and
business rates, the authors estimate that these factors are
likely to push up on the OBR's borrowing forecast by around £6
billion. But this will be largely offset by falls in the cost of
government borrowing – with ten-year gilt yields around 0.3
percentage points lower compared with the November forecast.
Going forward, big risks to the public finances remain. If
plummeting net migration leads to a large reduction in population
projections at a future fiscal event, that could reduce
Government tax receipts by £10 billion or more. A range of risks
remain from future policy too – most notably if defence spending
were to increase to 3 per cent in this Parliament, costing around
£10 billion in day-to-day spending. But, on the upside, the OBR's
forecast for wage growth remains conspicuously weak. If the Bank
of England forecast for wage growth were to prove correct, then
borrowing could be as much as £20 billion lower.
All this does not mean that economic policy should ‘clock off'
until the Budget in the autumn.
While living standards for 2026 are set for a boost, with typical
income growth expected to be 1.2 per cent for non-pensioner
families, and an even stronger 4.7 per cent for lower-income
families, the outlook beyond then remains bleak. Families across
the distribution are set to see their incomes fall in real terms
over the three years between 2026-27 and 2029-30.
The latest ONS labour market statistics also show that young
people have it particularly tough, says the Foundation, with the
UK's youth unemployment rate now above the EU average for the
first time since records began in 2000.
Policy uncertainty has weighed on business and consumer
sentiment, and so the Chancellor should be applauded for
attempting to reduce it, including through a low-key Spring
forecast event. However, there should be no delay in efforts to
boost growth or to respond to a weakening labour market.
Finally, the Foundation estimates that the existence of the OBR
saves £37-55 billion a year in debt interest costs. It warns that
the Government should resist the temptation to undermine the OBR
by curbing what it can publish. Instead, the Treasury should move
quickly to appoint a new Chair and expand its resources to be
commensurate with its remit. Publication of the pre-measures
forecast ahead of a fiscal event, as happens in other countries,
could also improve the quality of the Budget process in the UK.
James , Chief Economist at the Resolution
Foundation, said:
“The small and offsetting news since last year's Budget means
that the Chancellor's ‘headroom' will be little changed when the
OBR produce their updated forecasts in March.
“To avoid raising already heightened policy uncertainty, it is
understandable that the Treasury is making the Spring forecast a
low-key event.''
“But economic policy should not shut down until the Budget in the
autumn. Instead, the Government should ‘double down' on efforts
to raise growth, help those struggling with the high cost of
living and address rising unemployment.''
