UK Budget Watchdog Recasts Forecasts for Sticky Inflation, Threatening £24 Billion Fiscal Buffer
Updated
Updated · Reuters · Jun 3
UK Budget Watchdog Recasts Forecasts for Sticky Inflation, Threatening £24 Billion Fiscal Buffer
3 articles · Updated · Reuters · Jun 3
Summary
Britain's Office for Budget Responsibility said it will build more persistent inflation into its next forecasts after the Iran war, a shift that could cut the government's fiscal headroom more than some analysts expected.
The OBR said it has changed its modelling after underestimating the 2022 energy shock's second-round effects, which drove higher inflation, spending, borrowing and debt than it had forecast.
March 3 projections gave finance minister Rachel Reeves £24 billion of headroom to meet her 2029-30 balanced-current-budget rule, but those figures did not include the war that began on February 28.
Bank of England forecasts already point to weaker growth and higher inflation from the conflict, though officials say inflation may prove less persistent than in 2022 because the economy has more slack and gas prices have risen less.
The updated OBR forecasts will shape Reeves' budget later this year; she has said she will not repeat the costly universal energy subsidies used in 2022.
As a distant war spikes UK debt, how can Britain build a truly shockproof economy?
With global trade choked at the Strait of Hormuz, what is the ultimate price of intervention versus inaction?
Will the worst oil shock in history finally force a global break from fossil fuel dependency?
UK Economic and Energy Crisis 2026: The Iran War’s Global Shockwaves and the Urgent Shift Toward Energy Independence
Overview
The ongoing Iran war has caused immediate and significant economic fallout, with urgent warnings and revised forecasts from the Office for Budget Responsibility and other economic bodies. A sharp surge in global energy prices, driven by the conflict and the closure of the Strait of Hormuz, has pushed up UK inflation and weakened growth forecasts for the coming year. Chancellor Rachel Reeves acknowledged the serious challenge to the global economy, as the UK faces higher costs and fiscal strain. The situation highlights the UK's vulnerability to energy shocks and the need for policy responses to manage rising prices and economic uncertainty.