Rachel Reeves, the Chancellor of the Exchequer, expressed confidence that the UK can overcome negative economic forecasts despite a prediction from the Office for Budget Responsibility (OBR) indicating a £20 billion budgetary gap due to a projected decline in productivity. Reeves stated her intention to challenge these forecasts, which could complicate her adherence to a Labour manifesto pledge not to increase income tax.
In a piece published in the Guardian, Reeves recognized the financial decisions she faces as part of her upcoming budget are complex and carry significant implications. She is reportedly contemplating a tax increase to address the budget shortfall. The OBR is expected to lower its productivity estimates by 0.3 percentage points, adding further pressure to the economic landscape.
Reeves is preparing for one of the most challenging budget scenarios in recent years, which includes considerations for reversing a winter fuel cut, maintaining welfare payments, and addressing the two-child benefit cap. The Treasury remains optimistic that the OBR might also account for lower borrowing costs and unexpected growth in its final assessments before the budget.
In her article, Reeves noted the lasting impact of previous administrations on the UK’s economic performance, asserting the need to focus on future solutions rather than past grievances. She emphasized her commitment to defy economic forecasts and ensure responsible fiscal choices.
The International Monetary Fund recently adjusted its growth forecast for the UK upward slightly, suggesting it may be among the faster-growing economies in the G7. Nevertheless, concerns remain about rising inflation and its effects on households and public support for Labour.
Treasury advisers have indicated that increasing taxes, particularly on wealthier individuals, may be a necessary measure. Reeves, however, is wary of the political implications of such adjustments. At a recent business summit, she highlighted the need for fiscal resilience against future economic shocks and indicated that high inflation is partly due to trade complications following Brexit.
Source: https://www.theguardian.com/politics/2025/oct/28/britain-can-defy-gloomy-economic-forecasts-says-rachel-reeves