What to Expect From the UK Budget

The United Kingdom's fiscal trajectory and economic performance center on the upcoming annual budget, where the Treasury aims to achieve a current budget balance by the third year of its forecast. Despite global trends toward larger deficits, the UK has made significant consolidation progress, maintaining a primary deficit of just under 1% of GDP compared to much higher figures in the US and France. Chief UK Economist Bruna Skarica highlights that while growth has outperformed expectations at 1.3%—driven by an 8% surge in the tech sector and resilient household balance sheets—market sentiment remains tempered by persistent inflation risks and high debt-servicing costs. Key developments to watch include a potential roadmap for fiscal devolution to regional mayors and the continued adoption of AI to boost productivity. Although the market prices in four interest rate hikes, current analysis suggests a more moderate path of two hikes may be sufficient to manage the ongoing energy-driven inflation shock.