UK Autumn Budget 2026: What could it mean for you?

The City and financial markets were looking for a Budget that did not provide any shocks, was growth friendly, met the fiscal rules, and left a sufficient buffer to cope with future uncertainties.

On that basis, the Chancellor gave the City what they were looking for. However, the Chancellor’s focus on a raft of specific spending and tax measures, meant that this was a Budget that postponed addressing the big macro-economic issues of only modest economic growth and fragile public finances.

Let’s focus on the growth numbers, the fiscal sums and the implications for the markets.

The Chancellor was right to highlight how the economy had been thrown off course by the War in Iran. As he said, were it not for the War inflation would have likely hit its 2% target back in the spring. Now, the OBR is forecasting that inflation will average 3.2% this year and 3.1% next.

Despite this, the economy has proved resilient. A year ago, the OBR forecast GDP growth of 1.4% for this year. By this spring, it cut that forecast further, to 1.1%. And while it raised it to 1.2% today, it might have raised this to have been higher given the economy’s recent resilience.

As the OBR notes, the near-term outlook is uncertain, being contingent upon the War and its impact on energy prices, which will feed higher inflation and squeeze spending power. Real household disposable income is expected to fall by a sizeable 0.8% this year, followed by only a 0.1% rise in 2027 and a 0.7% rebound in 2028.

As a result, GDP growth for next year is forecast at a very low 1%. The OBR sees growth then averaging around 1.7% over the next four years. As the Chancellor noted in his speech, low investment has been a perennial issue, and while he announced measures to boost public investment, it is sluggish private investment that is the problem.

With growth modest, the fiscal outlook remains fragile.

The Budget provides a fiscal boost of £7.6 billion in 2026/27 and £2.5 billion in 2027/28. In subsequent years, the Budget’s measures represent a fiscal tightening, of £0.7 billion in 2028/29, £5.2 billion in 2029/30, £6.1 billion in 2030/31 and £7.4 billion in 2031/32.

There were no less than 98 specific tax and spending measures. This is higher than in any Budget in recent history.

As the OBR notes, the tax take, in terms of the ratio of tax to GDP, will remain high and rise in every year of the forecast. Public spending is forecast to rise slightly to 45.7% of GDP in 2027/28 before falling to 44.7% by 2031/32. But this is predicated on curbing departmental spending, which seems unlikely.

In turn, public sector net debt is expected to be 95.5% this fiscal year, and peak in two years in 2028/29 at 97.3%. But, even with an optimistic view of spending it still finishes the forecast period in 2031/32 at a high 95.6%. These fiscal numbers are vulnerable to any setbacks.

The most interesting aspect were plans for fiscal devolution, with business rates and a share of income tax to be retained by some mayors.

All of this continues to take its toll on borrowing. The exact gilt issuance for coming years has yet to be announced, but it is likely to be sizeable, with the Gross Financial Requirement set to rise. This is the total the government needs to raise to cover new borrowing and the repayment of maturing debt. It is set to rise from £274.8 billion this fiscal year, to £312.6 billion in 2027/28 and £300.4 billion in 2028/29, before stabilising around £250 billion, predicated on the improved debt figures, which may not materialise.

The Debt Management Office also announced a £4.4 billion increase in gilt issuance for this fiscal year, compared to its spring forecast, with gilt sales of £250.6 billion. High borrowing and high debt servicing look set to remain a fixture for some time.

The Chancellor announced that he will meet his fiscal rules and that his buffer, which had been £23.8 billion for the main fiscal rule, is now set at £15 billion, which was seen as acceptable to the markets ahead of the Budget.

The other aspect for the City is that the increase in the banks’ surcharge tax was less than expected, up from 3% to 6% and will be temporary, for 15 months. Also, as expected, the tax on the cash ISA will be left untouched.

In contrast, the need to address some of the big macro-economic issues, such as continued modest growth and fragile public finances was postponed. In the summer the OBR said that fiscal pressures are likely to build over the long-term and it was a message it repeated today. Ahead of the Budget the market was unconvinced about future plans to reduce the ratio of debt to GDP and that is likely to remain the case.

The most significant underlying policy shift appears to have been on energy policy, with a focus on targeted measures to reduce energy bills.

The Budget will not materially impact the forthcoming decision of the Bank of England on interest rates. If anything, the OBR’s confirmation of a further rise in inflation and the fiscal boost provided by this Budget will add to the inevitability of a hike in the Bank Rate from 3.75% to 4% on November 5th. The market expects Bank Rate to rise further over the next year, towards 4.5%, adding to pressure on the housing and construction sectors, as well as keeping yields elevated, adding to borrowing costs.

The Budget focused on specific tax and spending measures but lacked a long-term economic strategy. We will have to wait for the ten-year plan for that. Micro-management may allow the Government to claim it is taking action, but it is no substitute for addressing the macroeconomic challenges of weak growth, rising spending pressures and fragile public finances. The danger is that the difficult decisions have merely been postponed.