OBR Forecast Tweak Offers Rachel Reeves £1.7 Billion Boost as Gilt Yields Fall

A timely adjustment by the Office for Budget Responsibility has provided Chancellor Rachel Reeves with a £1.7 billion reprieve to stabilise the public finances before the upcoming Budget. This move follows alteration of the period used to forecast bond market movements, a decision made amid mounting political scrutiny.

Departing from its established process, the OBR selected the ten working days up to 21 October for assessing gilt yields, instead of the customary window closing on 10 October. This recalibration enabled the OBR to reflect a marked decline in gilt yields, directly lowering the government’s borrowing costs for its fiscal projections.

The timing of this adjustment is significant, as it influences the scope for tax and spending policies ahead of Budget day. Government borrowing costs dipped notably as the yield on ten year UK gilts dropped from 4.67 percent on 10 October to 4.48 percent by the end of the revised forecasting period. Oxford Economics calculates the savings on debt servicing due to lower yields at around £1.7 billion.

Pressure intensified when Chancellor Reeves reversed her position on raising income tax, sparking a sell off in gilts and a slump in sterling. This episode followed widespread speculation that increasing income tax would fail to generate the anticipated revenues. Senior party figures, including Shadow Business Secretary Andrew Griffith, criticised the approach, describing the lead up to the budget as chaotic and questioning the government’s grasp on economic management.

The OBR defended its exceptional change in procedure, citing the extended gap between the closure of the pre measures economic forecast and the publication of its Economic and Fiscal Outlook. The watchdog maintained that any adjustments to its forecasting windows are reserved for exceptional circumstances, and both OBR and Treasury representatives dismissed claims of political motives behind the timing.

Market analysts argue that while the impact of a later snapshot is not transformative, it does offer the government some additional fiscal flexibility on the margins. Treasury sources insist that the decision to alter the forecasting window preceded the sharp fall in gilt yields and that the OBR’s independence remains intact. Nonetheless, the episode underscores the delicate balance required in maintaining both fiscal credibility and political commitments in a volatile market environment.