|

UK: Fiscal buffer builds as pressures grow – Deutsche Bank

Deutsche Bank’s Chief UK Economist Sanjay Raja describes the UK Spring Statement as largely uneventful, with only a handful of new measures and around GBP 6bn in extra borrowing by 2030/31. He notes a marginally better borrowing outlook and higher fiscal headroom, but warns that recent events, energy support demands and defence spending pressures could test tight spending plans by the Autumn Budget.

Spring Statement seen as fiscal non-event

"As expected, today's Spring Statement was largely a non-event. There were no big fireworks. New policy announcements were contained to already announced measures."

"After delivering 75 policy measures in the autumn, Chancellor Reeves stuck to her commitment to avoid any new major policy measures. In total, spending decisions taken in the Spring Statement were projected to add up to GBP 6bn in borrowing by 2030/31."

"As a result, borrowing is expected to track lower over every single year of the forecast horizon beyond 2026/27 (compared to the Autumn Budget), driven primarily by lower net debt interest payments and non-interest receipts. In even better news, public sector net debt is expected to be around GBP 22bn lower per year across the OBR's (Office for Budget Responsibility) five-year forecast horizon."

"On her primary headroom, the Chancellor raised her fiscal buffer to GBP 23.6bn in 2029/30. On her secondary rule, the Chancellor's headroom picked up to just over GBP 27bn."

"Based on current market conditions, higher inflation and weaker spending would dominate near-term projections, leaving the Chancellor with GBP 5bn less in headroom. Calls for support on energy prices will only increase from here, alongside calls to ramp up defence spending. Tight spending envelopes will also be called into question. "

"While the Chancellor may have built up a little bit more of a buffer over the last two fiscal events, pressure to spend some of her fiscal space will likely come to a head in the Autumn Budget."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

More from FXStreet Insights Team
Share:

Editor's Picks

AUD/USD seems vulnerable near 0.6800, 10-month low amid bullish USD

AUD/USD languishes near a 10-month low during the Asian session on Friday, awaiting a break below 0.6800 before the next leg up amid a bullish US Dollar. Firming Fed rate-hike expectations, along with fading hopes for US-Iran diplomacy, help the USD hold gains at its highest level since April 2025. Moreover, the RBA’s dovish tilt undermines the Aussie and backs the case for further losses.

USD/JPY bulls turn cautious near 160.00 amid intervention risks

USD/JPY enters a bullish consolidation phase around its highest level since early September as bulls turn cautious amid intervention risk near 160.00. Meanwhile, the downside seems cushioned as the wide US-Japan interest rate gap keeps the Yen carry trade active. Furthermore, the possibility of a jumbo Fed rate hike and Middle East uncertainties hold the US Dollar near a 19-month top, supporting the currency pair.



Gold sticks to gains above $3,900; bulls lack conviction as Fed and Iran risks support USD

Gold clings to modest recovery gains above the $3,900 mark during the Asian session, snapping its three-day losing streak to the lowest level since late September set the previous day. The US Dollar takes a breather after a strong three-day rally to its highest level since April 2025, offering some support to the commodity. However, firming US Federal Reserve rate-hike expectations and Middle East uncertainties continue to support the Greenback. This keeps a lid on any further upside for the precious metal.

Bitcoin just posted five straight losing weeks, and the storm may not be over yet

Bitcoin is struggling to find support, slipping below $70,000 as multiple headwinds threaten to push the Crypto King lower. The much-anticipated “Uptober” rally failed to materialize, with persistent selling pressure and widespread liquidations instead reinforcing the “Rektober” narrative.

Week ahead – Fed Minutes, inflation data and Nvidia earnings to guide investors

Fed minutes may add to hawkish tone as bets of 50-bps hike grow. Nvidia to report earnings as bar to impress high after spy scandal. Trade and geopolitics to be focal point of Trump-Xi summit.

What the US CPI headline doesn’t tell you about inflation

Brent crude has fallen about a third since mid-October on hopes the Iran war is ending, but diesel, freight and fertiliser costs haven't followed. Those costs reach US consumer prices in stages through 2027 and could keep inflation high after gasoline gets cheaper.