UK Budget – The OBR November 2025 Economic and Fiscal Outlook: A Deep Dive

Introduction: A Budget that Buys Time, Not Certainty

The Office for Budget Responsibility’s (OBR) November 2025 Economic and Fiscal Outlook paints a picture of a UK economy that is stabilising but still structurally fragile.
Headline indicators suggest modest growth and improved compliance with fiscal rules, yet the underlying vulnerabilities – weak productivity, high debt, and rising welfare costs – are far from resolved.

This article explores the key economic forecasts, fiscal outcomes, policy decisions, and long-term risks, translating technical analysis into a clear narrative about where the UK economy stands and where it may be heading.

1. The Macro-Economic Outlook: Stability Built on Soft Foundations

1.1 Growth Expectations

Real GDP growth is expected to average around 1.5% between 2026 and 2029, a downgrade from earlier projections.
The main reason is a weaker assumption for underlying productivity.
Although the level of GDP in 2029 is similar to what was expected earlier – thanks to a stronger starting point in 2024–25 – the path to get there is flatter and more vulnerable to shocks.

1.2 Inflation Trajectory

Inflation is forecast to ease back towards the 2% target by 2027, after remaining somewhat elevated in the near term.
Some Budget measures slightly dampen inflation in the short run, but the benign trajectory still relies heavily on global energy prices stabilising and monetary policy remaining credible.

1.3 Labour Market and Wages

Unemployment is projected to hover around 4.5–5%, while real wage growth returns but does not surge.
Weak productivity acts as a ceiling on pay growth, which in turn limits how quickly living standards can improve.

2. Productivity: The Central Weakness of the UK Outlook

Productivity growth remains the pivotal – and most uncertain – part of the outlook.
The OBR now assumes underlying productivity grows at roughly 1.0% a year, having repeatedly revised this down over the past decade.

The stakes are high. If productivity growth were closer to 0.5% – similar to the post-financial-crisis average – the public finances would look markedly worse, with the current budget slipping back into deficit by the end of the decade.
A more optimistic path, for example from successful adoption of AI and other technologies, could widen the surplus dramatically.

In short, the fiscal story is now deeply intertwined with whether the UK can finally solve its productivity problem.

3. Fiscal Policy: Backloaded Tightening After Near-Term Loosening

The fiscal stance in the November 2025 Budget follows a now-familiar pattern: a modest loosening in the near term followed by tighter policy later in the forecast period.

In the first few years, extra spending and targeted tax measures lift borrowing.
Later in the decade, tightening – largely via tax rises already in the pipeline and restrained departmental spending – is expected to bring borrowing down and edge the current budget into surplus.

The Government now has an estimated 59% probability of meeting its main fiscal mandate, with a margin of about £22 billion.
That sounds comfortable, but in historical terms it is only a modest buffer against the size of possible forecast errors and economic shocks.

4. Taxation: Record Burden and Rising Sensitivity

The tax take is projected to climb to around 38.3% of GDP by 2030–31 – the highest level in modern UK history.
A significant part of this rise comes from freezes to personal tax thresholds, which quietly pull more people into paying higher rates as wages and prices increase.

The outlook acknowledges growing risks from this approach:

• Higher effective tax rates can discourage work and investment.
• Receipts become very sensitive to assumptions about wage and price growth.
• Capital taxes and high-income taxpayers may respond strongly to rate changes, affecting behaviour and revenues.

A relatively modest undershoot in nominal earnings growth would significantly reduce tax receipts by the end of the decade, eroding the headroom against fiscal targets.

5. Public Spending: Pressures from Welfare, Pensions and Debt

Overall public spending as a share of GDP is projected to stay around 44–45%, higher than pre-pandemic levels.
But beneath that stability, important shifts in composition continue.

5.1 Welfare and Pensions

Welfare spending is forecast to exceed £400 billion by 2030–31 and reach a little over 11% of GDP.
The main drivers are:

• An ageing population and rising pensioner numbers.
• Increasing disability and health-related caseloads that surged after the pandemic.
• Policy decisions, including reversing earlier welfare tightening and extending support for certain groups.

The state pension continues to be supported by the triple lock, although this is partially offset by the staged rise in the state pension age from 66 to 67.

5.2 Debt Interest and Legacy Costs

Debt interest remains historically high, reflecting both the stock of public debt and higher interest rates.
While it does not spiral out of control in the central outlook, it still consumes a larger share of national income than at almost any point in the post-war period.

5.3 Local Government Strain

Local authorities face escalating pressures from:

• Special educational needs and disabilities (SEND) provision.
• Rising costs of temporary accommodation and homelessness services.
• Broader demand for social care and core services.

These strains increase the risk of further financial distress in local government and may ultimately translate into service cuts or higher local taxation.

6. Housing and the Rental Market: A Slow Squeeze

Over the past decade, successive policy changes – from tighter tax treatment of landlords to stricter regulation – have steadily eroded returns from private rental property.
The latest measures continue this trend.

The OBR warns that this is likely to reduce the supply of rental homes over time.
If tenant demand remains strong and new supply does not keep pace, this points to a structural upward drift in rents, adding further pressure to already stretched household budgets.

7. Long-Term Structural Challenges

7.1 Fuel Duty and the EV Transition

As electric vehicles (EVs) replace petrol and diesel cars, traditional fuel duty – a major revenue source – is set to decline sharply.
The outlook reiterates that this poses a substantial long-term fiscal challenge.

A new mileage-based charge on battery and plug-in hybrid cars is due to recover some of this lost revenue, but only around a quarter by 2050.
That still leaves a very large gap to be filled by either higher taxation elsewhere or additional motoring charges.

7.2 Trade and Infrastructure

Potential positives include:

• The proposed India–UK Free Trade Agreement, which could provide a small but permanent uplift to GDP if fully implemented.
• Planning and infrastructure reforms that might, over time, support higher investment and productivity.

However, the OBR judges that, in practice, these are unlikely to deliver large near-term gains and may not be sufficient to offset the broader structural weaknesses.

8. Risks and Vulnerabilities

Several key risks could knock the outlook off course:

• Slower productivity growth than assumed, eroding tax revenues and worsening debt dynamics.
• Interest rate volatility, which would directly affect debt interest costs and indirectly hit growth.
• Equity market corrections that depress wealth, confidence and tax receipts.
• Welfare spending overruns, particularly if disability and health-related claims continue to grow at recent rates.

Even in the central case, public debt is projected to stabilise at around 96% of GDP – roughly double the average for advanced economies – leaving the UK more exposed when the next major shock hits.

9. Winners and Losers: Who Gains and Who Feels the Squeeze?

The November 2025 package and the broader fiscal path do not affect everyone equally.
Some groups are relatively protected or even better off, while others bear the brunt of higher taxes, squeezed services, or rising costs.

9.1 Likely “Winners”

• Pensioners
  The state pension continues to benefit from the triple lock, and pensioner-related welfare spending (including winter fuel payments and pension credit) rises over the forecast.
  Although the state pension age increase is a partial offset, existing pensioners are relatively well shielded compared with many working-age groups.
• Disability and health-related benefit recipients
  Spending on disability and health-related benefits grows significantly, reflecting higher caseloads and more generous policy decisions than previously planned.
  For individuals relying on these benefits, this helps cushion the impact of a tougher economic environment.
• Low-to-middle income households reliant on targeted welfare
  The reversal of some earlier welfare cuts, and the maintenance or extension of specific support schemes, mean that the safety net is slightly stronger than it might otherwise have been.
• Electric vehicle drivers in the medium term
  The new mileage-based charge is set at a rate below the equivalent fuel duty paid by petrol and diesel drivers per mile, meaning EV users still enjoy a tax advantage even as the new system is introduced.

9.2 Likely “Losers”

• Middle-income workers
  Frozen income tax thresholds quietly pull more earners into higher bands over time.
  Combined with subdued productivity and wage growth, this group faces a noticeable squeeze on real disposable income, especially those not receiving significant welfare support.
• Higher earners and asset-rich households
  Increases in taxes on dividends, savings and property income, as well as the continued freeze of certain allowances (such as for inheritance tax), reduce post-tax returns on wealth and investments.
• Private landlords
  The Budget adds to a decade-long trend of less favourable tax treatment and tighter regulation.
  Returns are further reduced, and over time some landlords may exit the market, with knock-on effects for tenants.
• Renters
  While some reforms aim to protect tenants’ rights, the gradual reduction in private rental supply risks driving rents higher in many areas, offsetting the benefits of those protections.
• Local authorities and users of local services
  Councils face rising demands and costs in areas like SEND and temporary accommodation without a commensurate, secure funding uplift.
  That increases the likelihood of service reductions, local tax rises, or both.
• Future taxpayers
  With debt stabilising at a very high level and long-term revenue gaps (such as the decline in fuel duty) only partly addressed, a significant portion of the adjustment burden is effectively pushed onto future governments and future taxpayers.

Conclusion: An Economy on Borrowed Stability

The November 2025 OBR outlook describes a UK economy that is no longer in crisis, but far from secure.
Growth is modest, inflation is gradually returning towards target, and the Government is – just about – on course to meet its fiscal rules.
On the surface, that looks like progress.

Scratch beneath that surface, however, and the picture is more troubling.
Productivity remains stuck in a low gear, the tax burden climbs to historic highs, welfare and pension costs continue to rise, and public debt sits close to 100% of GDP.
The fiscal “headroom” touted by ministers relies on optimistic assumptions about growth, interest rates, and the controllability of welfare spending.

In effect, this article shows a state managing risk rather than resolving it.
Temporary measures and cautious tightening may hold things together for now, but they do not fundamentally change the long-run trajectory.
Without sustained improvements in productivity, bolder structural reform, and a clearer long-term tax and spending strategy, the stability of the late 2020s risks being little more than a pause between pressures.

For policymakers, investors and households alike, the message is clear: the immediate storm may have passed, but the UK’s economic foundations still need serious repair.