Britains Fiscal Watchdog to Deliver Twenty Billion Blow to Reeves Autumn Budget

Britain’s independent fiscal watchdog is poised to deal a significant blow to Chancellor Rachel Reeves, with the Office for Budget Responsibility (OBR) expected to downgrade its forecasts by up to £20bn just ahead of the Autumn Budget. The move will heap pressure on Reeves as she prepares to unveil her tax and spending plans on 26 November, with the new numbers set to plunge the UK’s public finances deeper into the red.

The OBR is widely thought to have previously held overly optimistic assumptions about productivity growth in the UK. Since the financial crash, productivity gains have failed to materialise at the rates many expected. Oxford Economics’ chief UK economist, Andrew Goodwin, indicated that a downgrade in the region of £15bn to £20bn is now inevitable. He noted that the OBR must demonstrate its credibility as the nation’s “sober judge of economic policy”, and should not boast the most optimistic outlook of any forecaster.

Even a marginal downgrade—for instance, a reduction of just 0.1 percentage points—translates into a hit of £9bn in the Chancellor’s calculations, necessitating higher borrowing, potential spending cuts, or new tax rises. According to Matt Swannell, of EY, productivity growth is now forecast to rise to just under 1% annually, aligning with the latest projections from both the IMF and the Bank of England, and falling short of the OBR’s previous 1.25% estimate. This adjustment alone could wipe nearly £20bn from the government’s fiscal headroom.

Andrew Wishart, senior economist at Berenberg, has warned that these revisions could deliver an £18bn fiscal hit, and he estimates the government faces a black hole of £35bn to £40bn in the public finances before the autumn Budget, with the productivity downgrade responsible for around half. Previous promises from Reeves that her record £40bn tax-raising Budget was a one-off are now in question, especially as she cautioned this week that changing global circumstances might necessitate more tax measures.

Spending cuts are considered politically unpalatable, making further tax rises increasingly likely. There are concerns amongst commentators that substantial tax hikes could become an annual event, given ongoing pressures from higher borrowing, a shifting international landscape, and greater demands for public spending—particularly on defence.

Calls from Reeves to reduce the watchdog’s authority over economic forecasts to once per year (down from two) signal a shift in her stance towards the OBR’s influence. Nevertheless, the Treasury maintains its commitment to ongoing investment in the UK’s economic renewal, aiming to build a more robust economy for working people. The challenge ahead for Reeves is clear, as the prospect of fresh fiscal storms looms over Westminster.