ING estimates the UK will have about £10 billion of fiscal headroom before corrective action, putting the Oct. 28 Budget under pressure as higher borrowing costs raise the government’s interest bill.
September 2026 figures from the Office for National Statistics (ONS) put central government debt-interest payments at £10.9 billion, £2 billion above the Office for Budget Responsibility (OBR)’s monthly forecast. Public sector borrowing totaled £24.5 billion, £1.9 billion above forecast. The ONS said a £4 billion capital adjustment on index-linked gilts formed part of the interest bill, with most of it linked to the Retail Prices Index rising 0.6% between June and July.
James Smith, ING’s Developed Markets Economist, puts headroom for 2029-30 near £10 billion, compared with roughly £24 billion in the OBR’s March forecast. Under the current-budget rule, headroom is the projected amount left after revenue covers day-to-day spending, including debt interest. HM Treasury has said the government will meet its fiscal rules, but the OBR’s updated forecast is not due until after the Budget statement.
ING estimates that higher borrowing costs will add £11 billion a year to debt-interest spending by 2029-30. Its comparison with March cites rate expectations nearly one percentage point higher and 10-year gilt yields about 70 basis points higher.
For the Budget, ING expects tax increases of £5 billion to £6 billion, a mostly temporary cost-of-living package unlikely to meaningfully exceed £5 billion, and capital spending about £10 billion higher per year. Possible revenue measures include a higher bank surcharge and extending the National Insurance base, which could affect banks, landlords and partners in limited liability partnerships. The measures are analyst expectations, not announced policies.
Smith reads Treasury signals as indicating a preference for headroom above £15 billion, though no official target has been confirmed. ING also says last year’s Budget reduced headroom by less than many had expected. The firm expects a restrained Budget to have little effect on interest-rate expectations; it says market expectations for rate increases could strengthen if a material fiscal stimulus affects growth and borrowing.
The OBR is scheduled to publish its forecast after Chancellor John Healey presents the Budget on Oct. 28. The Bank of England’s next scheduled Monetary Policy Committee decision is Nov. 5.
