OBR Forecasts Higher Bills as UK Budget Headroom Shrinks

The Office for Budget Responsibility (OBR) expects UK inflation to reach about 3.75% by the start of 2027, with January’s jump in household energy bills doing particular damage. The forecast arrives alongside Chancellor John Healey’s measures to ease living costs: removing VAT from electricity bills and the standing charge from gas bills. The official relief and the official forecast sit side by side. Bills are still expected to push inflation higher.

The Household Bill

The OBR expects inflation to average 3.1% in 2026 and 3.4% in 2027, revising its earlier forecasts of 2.3% and 2% respectively. It forecasts a gradual decline after that, reaching the Government and Bank of England’s 2% target in 2028. Those are projections, not promises, and the near-term figures leave households facing a sharper rise before the target comes back into view.

The OBR raised its estimate for GDP growth in 2026 to 1.2%, from 1.1%, but cut its 2027 forecast to 1%, down from 1.6%. It cited rising inflation and global fallout from the war on Iran. Growth is then forecast at 1.6% in 2028, 1.8% in 2029, 1.7% in 2030 and 1.6% in 2031. The sequence is a set of official estimates; it offers no guarantee that those numbers will arrive in people’s lives as greater security.

The OBR also warned that persistent economic shocks since 2008 had contributed to weak growth and elevated government debt. That warning sets the terms of the budget debate: shocks are counted, growth is projected, and the state’s borrowing room becomes a central measure of what can be done. The people living through the forecasts appear in the numbers mainly as households, workers and taxpayers.

The Treasury’s Room to Manoeuvre

Healey described the economy as affected by “global economic storms” in his first autumn Budget. He reduced the UK’s fiscal headroom to £15 billion in 2029/30, from a previous prediction of £26 billion. The headroom is expected to improve to £22 billion by 2031. One report attributed the reduction to a £14 billion surge in debt interest costs; another said weaker headroom followed a jump in borrowing costs and linked it to a £15 billion increase in debt interest costs for the current year. The two accounts give different figures and descriptions; neither turns the forecasts into a settled outcome.

Government borrowing is forecast to exceed the earlier March projections by about £18 billion in 2026, £16 billion in 2027/28, and an average of £11 billion a year thereafter. Healey said borrowing as a share of GDP would fall to 4.2% in 2026 and decline each year to 1.8% in 2030/31. The OBR projects public sector net debt rising from 96% of GDP in 2026 to 97% in 2028/29, then falling to 96% in 2031. These totals frame the state’s budget choices in the language of ratios, costs and room to spend.

Forecasts, Not Guarantees

The OBR expects unemployment to reach 5% in 2026 and 5.1% in 2027, then decline to 4.9% in 2028 and 4.5% in 2029. Its earlier forecast put unemployment at 5.3% in 2026 and 4.9% in 2027. The revised numbers are lower for both years, but still place unemployment above the later projections in the sequence.

The yield on UK 10-year gilts, or government bonds, eased by two basis points after the Budget. That small movement sits among much larger forecasts for borrowing, debt and household inflation. The Financial Times page displayed the headline “Healey praised business. The feeling was not mutual,” but its article text was inaccessible. The two Telegraph pages could not be fetched. What remains in the available figures is a budget measured through the state’s fiscal limits, while the forecast energy-bill rise lands at household level.