OBR warns Reeves's budget still leaves public finances in vulnerable' position

"The Office for Budget Responsibility (OBR) said the potential for damaging events such as a global stock market crash or future pandemic to knock the government's finances off course remained high, even while the chancellor increased her headroom from 9.9bn to 22bn. After a wide-ranging review of the UK's economic health stretching back to the 2008 financial crash, the OBR also said the economy would grow at a slower rate over the next five years than previously estimated."

"The OBR said the economy would grow by 1.5% this year, an increase from its earlier 1% forecast, and by 1.4% next year, much lower than a forecast in March of 1.9%. Growth would also be lower than expected in the following three years, undermining the chancellor's drive. As Reeves prepared to announce 26bn of tax rises in her set-piece speech, the OBR gave its verdict on the impact of her tax and spending measures in a document accidentally released early."

"The forecaster said the tax rises gave Reeves the funds to build a bigger financial buffer after the 16bn cost of its economic downgrade was offset by 14bn of extra income from higher tax receipts. The downgrade amounted to 0.3 of a percentage point in lost growth by 2030 compared with an estimate it made in March. Higher annual debt financing costs and larger welfare bills were factors that increased pressure on the chancellor to raise taxes."

The OBR warned that Rachel Reeves's tax-raising budget will still leave public finances vulnerable despite increasing the UK's financial buffer from 9.9bn to 22bn. The forecaster said risks such as a global stock market crash or a future pandemic could still knock government finances off course. Growth forecasts were downgraded after a review back to 2008, with GDP seen at 1.5% this year and 1.4% next year, lower than earlier estimates. The downgrade reduces cumulative growth by 0.3 percentage points by 2030 and higher debt financing costs and welfare bills increase pressure to raise taxes. Announced tax rises and higher receipts partly offset the downgrade but left only a slim buffer.

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