Chancellor John Healey is expected to introduce “large tax hikes” at this year’s Budget, according to economists. This comes as a rout in global bond markets has pushed up the cost of government borrowing.
The 10-year gilt yield has reached its highest level since August 2027, which Handelsbanken states could “further erode” the £22.7bn fiscal headroom available to the Chancellor. Handelsbanken's senior UK economist indicated that increased gilt yields would “add to the likelihood that fresh tax increases will be announced on 28 October”.
Researchers at Pantheon Macroeconomics suggest that higher gilt yields have reduced fiscal headroom to £13bn, down from previous forecasts of approximately £15bn. Economists Rob Wood and Elliott Jordan-Doak also anticipate “more large tax hikes are on the way.”
The impact on bond markets is expected to lead the Office for Budget Responsibility (OBR) to revise its projections for debt interest payments in 2030. The UK government is currently projected to spend around £135bn on debt payments in five years.
The OBR previously stated that the government would need to spend about £110bn on paying lenders this year.