Chancellor John Healey's fiscal headroom could be entirely wiped out by the ongoing war in Iran, according to a central fiscal forecast by analysts at EY. Economists suggest the Office for Budget Responsibility (OBR) may offer a more pessimistic view on the UK economy.
The Chancellor's current buffer against a borrowing target is estimated at £11bn. However, if the conflict in Iran persists until the middle of next year, economists predict that an additional £18bn could be removed from the fiscal forecast, potentially eliminating the headroom.
The different outcomes for public finances highlight the UK economy's partial reliance on external events. Mats Persson, EY's macro and geostrategy analyst, stated that forecast judgments show "how exposed the UK’s fiscal position has become to events well beyond its borders."
Alternatively, EY research also indicates that a decrease in the unemployment rate could lead to higher earning growth, boosting tax receipts and potentially increasing the Chancellor's headroom to around £40bn.