Box sets » Economic and fiscal outlook - October 2026
The recent rise in global energy prices represented a negative terms-of-trade shock for the UK, but was smaller than the 2022 shock and occurred against a backdrop of greater spare capacity. In this box, we explored how changes in the UK’s energy mix and intensity, reliance on energy imports, the pass-through of wholesale prices, and underlying economic conditions affect the impact of energy price shocks.
Revised ONS data showed significantly stronger historical growth in output per hour worked, largely reflecting lower estimates of average hours, while revisions to GDP and output per worker were relatively small. In this box, we explored how changes to National Accounts and productivity data affected the historical picture of UK economic growth and productivity and the implications for our forecast.
Recent fiscal events have seen a large number of measures targeted at 'closing the tax gap' with these expected to drive increasing amounts of yield over the forecast period. This box explored the relationship of HMRC compliance and debt measures with the tax gap, our approach to considering the impact of these measures and some of the key uncertainties related to their estimated yield and the path of the tax gap.
Recent merger activity has enabled companies with a large stock of historical tax losses to combine operations with profitable tax-paying companies, allowing greater use of losses against taxable profits. In this box, we explored how mergers affected the use of tax losses and the impact on the oil and gas receipts forecast.
Welfare spending as a share of GDP this year is relatively high by historical standards and is forecast to rise further as a share of GDP, largely reflecting growing health-related caseloads and an increasing pensioner population. In this box, we explored the factors driving welfare spending as a share of GDP over the forecast, including demographic trends, the state pension age, policy decisions and wider economic conditions.
Housing Revenue Accounts had come under increasing financial pressure as rental income failed to keep pace with rising expenditure, contributing to a significant increase in borrowing. In this box, we explored how trends in council housing stock, social rents, construction and maintenance costs, and regulatory requirements affected the financial position of local authorities
Pre-measures borrowing is forecast to rise as a share of GDP in 2031-32. This is unusual, as typically at the end of our forecast borrowing would be expected to be falling as a share of GDP. In this box we explored how this pre-measures rise relates to the emergence, or continuation, of long-term pressures identified in the 2026 Fiscal risks and sustainability report. Government decisions taken at this Budget then mean that borrowing remains flat as a share of GDP between 2030-31 and 2031-32.
The gap between public sector net debt and public sector net debt excluding the Bank of England widened due to quantitative easing and the Term Funding Scheme, and narrows as these schemes unwind. In this box, we explored how these schemes affected the two measures of debt over time, emphasise how recent falls in PSND have been driven by the unwinding of these schemes and highlight how PSND ex BoE is a better measure for debt sustainability.
Reclassifying water companies into the public sector could have increased public sector net financial liabilities and borrowing, while having a relatively small impact on the current budget deficit. In this box, we explored how reclassification could have affected the public sector balance sheet, receipts and spending, and the Government’s fiscal targets.
The growth corrected interest rate (R-G) is forecast to rise, increasing the debt stabilising primary balance. In this box, we explored the long-term trends of R-G and the implications for fiscal sustainability. R-G was negative during the post-war period, turned positive in the decades preceding the global financial crisis, and negative again when interest rates fell after the crisis. As the effective interest rate rises towards its historical average without being fully offset by nominal GDP growth, R-G turns positive by 2031-32. Combined with a much higher stock of debt, a primary surplus is required to stabilise debt.