Our best judgement is that in order to fund the increase in spending of £22bn outlined by the Chancellor today, Reeves will raise an additional £10bn a year (0.3% of GDP) via higher taxes and increase borrowing by about £7bn a year (0.3% of GDP). The remaining £5bn will be met by cuts in spending in other areas. We will incorporate this into our forecasts once we have a clearer sense of the fiscal landscape in the run-up to the Budget, now scheduled for 30th October. But at face value, it would push up our forecast for GDP growth in 2025 by about 0.2%-pts, but would also present an upside risk to our forecasts for inflation. Accordingly, it would probably dissuade the Bank of England from cutting interest rates as quickly as we currently expect.
We’ll be discussing the outlook for Bank of England, ECB and Fed policy in a 20-minute online briefing at 3pm BST on Thursday 1st August. (Register here.)
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services