UK Renewed Fiscal Pressures

Worsening economic conditions and rising energy prices are squeezing the UK's fiscal headroom, likely increasing borrowing by £10bn and necessitating future tax or spending adjustments.

Key Takeaways

• 1.Rising energy prices and interest rates are expected to increase UK borrowing projections and reduce fiscal headroom by approximately £10bn.
• 2.Structural spending pressures in health and defence mean current departmental expenditure plans are likely too tight and will require upgrades at the next Spending Review.
• 3.While near-term borrowing may rise, medium-term adjustment is constrained by market sensitivity, shifting the risk towards potential tax increases on capital gains or property.

Table of Contents

• UK—Renewed Fiscal Pressures
• Spending Plans Already Look Tight
• Reduced Uncertainty Around Fiscal Rules; Increased Risk of Tax Changes
• European Economics Team
• Disclosure Appendix

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