Market reaction and fiscal headroom
Financial markets reacted calmly to John Healey's first budget, with bond markets seeing barely any movement. The Office for Budget Responsibility expects the chancellor to meet his fiscal rule to balance day-to-day spending with revenues, leaving a £15bn margin. This is down from the £24bn cushion held at the spring statement, though Healey aims to rebuild headroom to £22bn by 2030-31. Higher borrowing costs added £14bn in interest expenses, pushing borrowing up by £8bn this year.
Energy support and inflation outlook
To help households manage living costs, the Treasury announced a £4bn package including a £100 payment for council tax bands A to D, cancelled fuel duty increases, and an extended VAT cut on electricity bills. However, the OBR forecasts that higher global energy prices driven by conflict in the Middle East will push economy-wide inflation to 3.5% next year. Real household disposable income is expected to fall slightly this year before gradually recovering.