Resolution Foundation Predicts £16 Billion Fiscal Hit to UK Buffer
The Resolution Foundation warns that a Middle East conflict could cut Britain’s fiscal buffer by £16 billion, erasing nearly 75% of the £23.6 billion headroom Rachel Reeves had secured under her key budgeting rule. The study projects UK interest rates 0.5 ppt higher and GDP 0.9% lower in three years, increasing 2029/30 borrowing by £16 billion.
1. Fiscal Buffer Erosion Risk
The Resolution Foundation’s scenario models a 0.5 ppt rise in interest rates and a 0.9% GDP contraction over three years due to sustained market shifts from a Middle East conflict, leading to a £16 billion erosion of the UK’s fiscal buffer by 2029/30.
2. Impact on Borrowing and Tax Policy
With borrowing projected £16 billion higher in 2029/30, pressure mounts on the Chancellor to consider tax increases or spending cuts. Reeves has indicated potential reallocation of departmental budgets rather than new taxes to maintain fiscal discipline.
3. Energy Costs and Household Support
As a net energy importer, Britain faces renewed inflationary pressure. The chancellor may introduce targeted, temporary energy bill support for low-income households to mitigate impact without breaching fiscal rules.