U.K. Budget Keeps Government on Track to Stay Within Rules — Update

By Paul Hannon

The U.K. government will stay within its fiscal rules after new spending and tax measures announced Wednesday, although with a slightly reduced cushion against setbacks, according to the Office for Budget Responsibility.

The government's budget plans are guided by two targets, one of which requires it to pay for day-to-day spending entirely out of tax revenue and borrow only to fund investment by the fiscal year ending at the start of April 2030.

The key metric for judging whether the government is likely to stick to its targets is the so-called headroom it has to meet that goal. In March, the OBR judged that it would reach its goal with 24 billion pounds, equivalent to $31.93 billion, to spare.

In a speech to lawmakers outlining his budget for the coming fiscal year, Treasury chief John Healey said the Office for Budget Responsibility had concluded that the government remained on track, but with headroom of 15 billion pounds.

"I have chosen to use some of the headroom established last year to absorb the impact of the Iran war, to protect the economy, and to protect family budgets," Healey said.

That is in line with what economists had expected. The war between the U.S. and Iran has raised the day-to-day cost of running the government by increasing the cost of energy, and has also raised the government's interest bill.

As a result, the government's budget deficit for the fiscal year ending early April 2027 will be wider than previously expected, at 4.2% of gross domestic product compared with 3.6%.

The war has also weakened the U.K. economy's near-term growth prospects. Although the OBR lifted its projection for this year to 1.2% from 1.1%, it cut its projection for 2027 to 1% from 1.6%.

"We did not want this war," Healey told lawmakers. "It's a war that has driven up costs on British families and businesses."

However, growth is forecast to pick up to 1.6% in 2028 and 1.8% in 2029. The new plans for spending and taxation aim to reduce the government's budget deficit to 2.1% of GDP in the fiscal year that ends in 2030, and further thereafter.

Healey announced modest new support for less wealthy households facing higher energy bills, and raised taxes on banks and gambling firms.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

October 28, 2026 09:53 ET (13:53 GMT)