UK Budget: Healey faces fiscal balancing act as 2027 growth prospects weaken

• Despite growing economic strains, the UK government commits to fiscal discipline.
• The 2027 growth forecast is cut substantially from 1.6% to 1%.
• Households are offered energy support as the government rules out wide-ranging tax rises.

With the war in Iran pushing up energy costs, United Kingdom (UK) Finance Minister Healey pledged to shield households while adhering to fiscal discipline. The commitments came as Healey delivered the government's annual Budget Statement to Parliament on Wednesday.

UK Gross Domestic Product (GDP) is forecast to grow by 1.2% this year, up slightly from the earlier estimate of 1.1%, according to the Office for Budget Responsibility (OBR). For 2027, however, the outlook has weakened markedly: projected growth has been cut from 1.6% to 1%. The budget deficit, meanwhile, is forecast at 4.2% of GDP this year, narrowing to 3.4% next year.

Despite warning of a £14 billion rise in debt interest payments this year, Healey insists that the government's fiscal rules will be met without tax rises for working people or substantial cuts to public services.

A £100 energy payment for 20 million households was announced, with an estimated cost of £2.6 billion. The government will also extend the electricity VAT reduction until July, while Healey reiterated its commitment to net-zero emissions by 2050.

Budget commitments and forecasts

Fiscal discipline will underpin the Budget, according to UK Finance Minister Healey.

Global economic turbulence confronts us.

Our debt interest spending will rise by £14 bln this year.

The fiscal rules will be met.

Some fiscal headroom will be used to cushion the impact of the Iran war.

Working people will face no tax increases.

Neither broad-based tax increases nor deep cuts to public services are acceptable.

Lower energy costs are our foremost priority.

Our commitment to net zero by 2050 remains unwavering.

For 2026, the OBR projects GDP growth of 1.2%, against 1.1% in its March forecast.

For 2027, the OBR projects GDP growth of 1.0%, against 1.6% in its March forecast.

For 2028, the OBR projects GDP growth of 1.6%, unchanged from its March forecast of 1.6%.

For 2029, the OBR projects GDP growth of 1.8%, against 1.5% in its March forecast.

A budget deficit of 4.2% of GDP is forecast by the OBR for "This year".

A budget deficit of 3.4% of GDP is forecast by the OBR for "Next year".

The forthcoming gas shippers obligation will be scrapped.

The electricity VAT cut will remain in place until July.

An energy payment of £100 will go to 20 mln households.

The scheme's cost will be £2.6 bln.

Sterling shows limited response to Budget

Down 0.12% on Wednesday, GBP/USD is trading at around 1.3290 at the time of writing. The Pound Sterling (GBP) has shown little response to Healey's Budget announcements.