OBR Forecasts Leak Ahead of UK Budget, Triggering Market Swings and Political Backlash

The Office for Budget Responsibility (OBR) unexpectedly published its economic and fiscal outlook hours before Chancellor Rachel Reeves' budget speech, causing immediate volatility in financial markets. Sterling surged to a session high of $1.32 from around $1.3153, while UK government bonds (gilts) initially rallied before stabilizing, with the 10-year yield holding at 4.50%. The FTSE 100 index climbed 0.4% as investors digested the optimistic near-term assessment.

The early release, which broke from standard practice, was attributed to a technical error, prompting an apology from the OBR on social media platform X. This deviation sparked political turmoil, with critics like Kemi Badenoch labeling the pre-budget buildup as the most chaotic in living memory, while Prime Minister Keir Starmer defended the government's approach, referencing past market instability under Liz Truss.

According to the OBR forecasts, public borrowing is projected to fall from 4.5% of GDP in 2025–26 to 1.9% by 2030–31, but debt will rise from 95% to 96% of GDP over the decade—double the average for advanced economies. The watchdog noted that Chancellor Reeves now has £22 billion in fiscal headroom, up from £9.9 billion in March, though it remains small relative to risks. Growth estimates were revised upward for 2024 to 1.5% from 1%, but lowered for 2026 to 1.4% from 1.9%.

Background from the budget preview highlights Reeves' challenges, including a £22 billion fiscal gap addressed through stealth taxes like extending income tax threshold freezes until 2030 (raising £7.5 billion annually) and potential levies on high-value properties. Despite avoiding manifesto-breaking tax hikes, the strategy faces political and market scrutiny, with Britain's debt tripling since 2000 and growth prospects remaining subdued.