UK's OBR: We now expect real GDP growth of 1.0% this year

The UK's Office for Budget Responsibility (OBR) said on Wednesday that the UK's long-term fiscal outlook remains very challenging amid the uncertainty surrounding the full impact of changes to welfare policies, per Reuters.

Key takeaways

"We now expect real GDP growth of 1.0% this year."

"UK economy forecast to grow 1.9% in 2026, 1.8% in 2027, 1.7% in 2028, 1.8% in 2029."

"OBR sees CPI of 3.2% in 2025 (October forecast 2.6%)."

"OBR sees CPI of 2.1% in 2026 (October forecast 2.3%)."

"Tax-to-GDP ratio is forecast to increase to a post-war high of 37.7% of GDP in 2027-28."

"High and volatile market expectations for bank rate and gilt yields continue to shape the fiscal outlook."

"The outlook for productivity growth is uncertain both in terms of its level and growth rate."

"If recent weakness in trend productivity growth persists and growth averages just 0.3%, the current budget would be in deficit by 1.4% of GDP in 2029-30."

"Current headroom is very small margin compared to the risks and uncertainty inherent in any fiscal forecast."

"Public spending is forecast to rise to 45.% of GDP next year, before declining over the remainder of the decade to 43.9% of GDP in 2029-30."

"Tax as a share of GDP is forecast to rise from 35.3% this year to a historic high of 37.7% in 2027-28 and remain at a high level for the rest of the forecast."

Market reaction

GBP/USD stays under modest bearish pressure and was lasts seen losing 0.4% on the day at 1.2893. Meanwhile, the 10-year UK government bond yield holds lower, losing about 2.5 basis points at 4.73%, 2-year government bond yield rises and now stays flat on the day at 4.298% and the 30-year government bond yield reverses earlier fall, rising to its highest level since mid-January at 5.407%.