Chancellor should build a 'minimum 30bn fiscal buffer' at the Budget to avoid fiscal doom-loop - London Business News | Londonlovesbusiness.com

"To restore credibility, NIESR argues that the government should aim for a safety margin of at least £30 billion (approx. 1 per cent of GDP) beyond any gap identified by the OBR - enough to provide genuine insurance against future shocks and to reduce borrowing costs by reassuring markets of fiscal discipline. Greater stability would also help to lower policy uncertainty, supporting both business investment and consumer confidence. This would likely kickstart the virtuous feedback loop that the UK economy so badly needs."

"Beyond the rules, the central issue is debt sustainability. With the real interest rate now exceeding the growth rate of the economy, stabilising the debt-to-GDP ratio requires persistent primary surpluses of around 1 per cent of GDP, and larger surpluses to bring debt down. Without such an adjustment, debt dynamics act as a ratchet: each new shock lifts the ratio higher, and without determined consolidation, it never falls back."

An underlying fiscal gap of around £38 billion exists relative to the government's rules, leaving public finances stretched after successive shocks. The UK faces the highest borrowing costs in the G7. A safety margin of at least £30 billion (about 1% of GDP) beyond the OBR-identified gap would provide insurance against future shocks and help reduce borrowing costs by reassuring markets. Stabilising the debt-to-GDP ratio requires persistent primary surpluses around 1% of GDP, with larger surpluses to reduce debt. GDP growth is forecast at 1.5% in 2025 before easing back to trend in 2026–27. Inflation is expected to fall to 2.7% in Q2 2026.

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