UK growth forecast for 2027 cut to 1% as Healey presents first budget
The Office for Budget Responsibility (OBR), the public body that produces the government's official economic forecasts, has cut its UK growth forecast for 2027 from 1.6% to 1%. The revision appeared in the report that accompanied John Healey's first budget as chancellor, the UK's finance minister, which was announced in October 2026, according to The Guardian.
The picture for the current year was different. The OBR raised its growth forecast for 2026 from 1.1% to 1.2%. It also forecast UK inflation, the rate at which prices rise, at 3.5% in 2026, up from the 2% it had predicted in March. The UK recorded the strongest growth rate in the G7, the group of seven large advanced economies, in the first half of 2026.
Healey's budget was framed around the public finances, which are the government's tax income, spending and borrowing. The UK's main fiscal rule requires day-to-day spending to be matched by tax receipts in three years' time. Healey left £15bn of headroom, meaning the margin by which the government meets that test, down from the £23.6bn left by his predecessor, Rachel Reeves, in spring 2026. Healey said the exchequer was spending £14bn more on debt interest, the cost of servicing government borrowing, because of financial market fallout from the war in the Gulf.
Borrowing had been running above forecast before the budget. Reuters reported that the government borrowed £77.3 billion over the first five months of the 2026/27 financial year, with borrowing ahead of the OBR's projections in September. Ahead of the budget, Reuters also reported that Healey was planning a cautious first budget, with stability in the bond market, where governments raise money by selling debt to investors, as a priority.
The budget included a package of household measures. It provided £100 payments for 20 million households at a cost of £2.6bn. It also set out a plan to abolish standing charges on gas bills, the fixed daily fee customers pay regardless of how much gas they use. The government said the change would apply to around 23 million homes.
The OBR's wider outlook is less buoyant over the longer term. It expects average GDP growth of 1.5% over the next five years, 0.3 percentage points slower than its March forecast. It said inflation-adjusted disposable income per person would fall in the short term before rising modestly before the end of the current parliament. Income levels, it said, would be only about 2% above pre-pandemic levels by the start of the 2030s. Borrowing, the OBR said, was still expected to fall to about 2% of GDP in the medium term, though at a slower near-term pace than previously planned.
