The Fiscal Headroom Under Threat As Reeves Heads To Washington
Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm.
Public sector borrowing increased in March, as the government spent £16.4 billion more than it received in income. This places the small fiscal headroom of £9.9 billion that the Chancellor manufactured in her Spring Statement under even greater threat.
While the UK bond market has calmed since reaching a yield of almost 4.9% on 14th January, yields on UK bonds remain relatively high and the prospect of ‘sticky’ inflation could raise them even further. Alongside this, global headwinds — the IMF has slashed its forecast for global growth in 2025 by 0.5% as a result of trade tensions — are compounding already low domestic growth forecasts. Rachel Reeves arrives in Washington for crucial talks with the US administration hoping that an Anglo-American trade deal can go some way to reignite the economy, but there is nothing guaranteed until both sides put pen to paper.
These economic developments will make it very difficult for the Government to ‘balance the books’ as interest payments on government loans continue to rise. Despite the work done at the Spring Statement to demonstrate a robust and stable economy, the Chancellor’s fiscal headroom is unlikely to survive for long.
