London: British Finance Minister Rachel Reeves may still need to adjust her fiscal plans in March, despite a recent decline in borrowing costs, a leading think tank warned on Thursday.
The Resolution Foundation stated that Reeves’ ability to meet her budget rule remains “on a knife edge” as government borrowing costs and expectations for Bank of England interest rates continue to exceed forecasts made by the fiscal watchdog in November.
“In her budget last autumn, the chancellor set out new fiscal rules but left herself very little wiggle room against breaking them,” said James Smith, Research Director at the Resolution Foundation.
Higher government bond yields are projected to increase debt servicing costs by £7 billion ($8.7 billion) annually, nearly consuming the £9 billion fiscal headroom that Reeves allocated in November to stay within her budget rules.
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“While other factors will also affect the OBR’s forecast, the chance of the Chancellor falling foul of her fiscal rules remains on a knife edge,” Smith noted, adding that Reeves might have to introduce tax hikes or spending cuts to remain on track.
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Reeves has reiterated that she will take necessary action when the Office for Budget Responsibility (OBR) releases its half-yearly public finance update on March 26.
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On Wednesday, she outlined her strategy to accelerate economic growth in Britain, which she hopes will ease the challenge of meeting her fiscal targets. Her plan includes ensuring that day-to-day public spending is balanced with tax revenues by the end of the decade.
