Autumn Budget 2026: 5 things that have changed for the OBR since March

The 5 things that have changed for the OBR since March

1) Economy larger than expected

Britain’s economic resilience and growth has surprised. In the OBR’s central forecast from March, real GDP growth was expected to slow from 1.4 per cent in 2025 to 1.1 per cent in 2026, down 0.3 percentage points lower than in November due to the weaker-than-expected GDP outturns in late 2025.

GDP has since accelerated to 1.8 per cent in the three months to August — the fastest pace of expansion since 2022. On an annual basis, GDP grew by 2.1% in August, well ahead of the expected 1.7%. Even the IMF, often a bit of a doomster on Britain, raised its growth outlook to 1.3% in 2026, an upgrade from the measly 0.8% in April.

Good bits – business investment +5.2%, breadth overall and AI-related productivity boost.

Bad bits – govt is driving output, +12% over last 4 years vs +2% for private sector, jobs vacancies at 5yr lows, construction –2% weaker despite buildout of AI infrastructure.

2) Labour market stronger than expected

The OBR’ forecast was for the unemployment rate to rise from 4.75% in 2025 to a peak of 5.3 per cent in 2026. While it remains the case that labour market weakness is driven primarily by entrants into the labour force struggling to find work (Neets), as the OBR said, the overall outlook would appear more positive than the OBR predicted. Latest figures showed the jobless rate fell to 4.7% from 4.9% from the month before, with a rise in payrolls, though vacancies fell to a 5-year low, indicating a low-fire, low-hire jobs market.

3) Productivity growth better than expected

The starting point for UK productivity is better than official data has been telling us. The OBR said in March that it sees potential output growth of 1.5% over the medium term, but the composition of growth tilting back to productivity, rising to 1% by the end of the forecast. Since then changes to the way the ONS looks at the data has seen UK productivity growth revised higher. Coupled with emerging signs of an AI-led improvement in productivity growth suggests the forecasts could be rosier in this Budget. Annual productivity growth expanded almost 2.4% between the third quarter of 2024 and the first three months of 2026, while output per hour rose by 1.4% in the year to June, meaning the starting point is higher than it was in March, which could see the OBR revised up its forecasts for productivity growth. Why does this matter? The OBR assumed 1% growth but noted in March that if productivity growth was 1.5% a year over the forecast, for example, borrowing could be £50 billion lower in 2030-31.

4) Inflation higher than expected

The US-Iran war has obviously changed the dynamic for inflation. Higher inflation eats away at departmental spending budgets in real terms, which casts doubts around forecasts for spending restraint. It also raises the tax take and narrows the fiscal gap quicker on balance. Slowing wage growth, the OBR said in March, means CPI would fall from 3.4% in 2025 to 2.3% in 2026 and 2.0% from 2027 onwards. Now inflation is expected to break 4% perhaps early next year. Latest data shows CPI inflation rose to 3.5% in September, up from 3.1% in August and ahead of the 3.4% anticipated as surging petrol prices (+8.2%) stoked the headline rate. Core inflation, which excludes food and energy, also ticked up to 2.8% from 2.6%, hinting perhaps at some broadening in price pressures.

5) Borrowing has been higher and the fiscal headroom lower

UK government borrowing has fallen this year but has remained above the forecasts. Borrowing was £97.8 billion in the financial year to September 2026, down £4.4bn from last year but £6bn above the OBR forecast. Debt at the end of September 2026 was provisionally estimated to have exceeded £3 trillion for the first time. However, as a proportion of the economy, debt was lower than a year earlier. This means the fiscal headroom has likely been halved from the ~£24bn left by Rachel Reeves in March.