Stronger growth fails to deliver public finances windfall 21 August 2026 Strong growth in the first half of the year has failed to deliver a public finances windfall for the Chancellor as the economic impact of the conflict in the Middle East takes its toll on borrowing costs, underlining the challenge he faces as he prepares for his first Budget, the Resolution Foundation said today (Friday). With the Budget now less than ten weeks away, today’s release comes as the OBR begin preparations for their economic and fiscal forecast in earnest. There was some good news as HMRC increased their estimate for receipts received in previous months. We also learned that Rachel Reeves in fact left office with the public finances bang on track with the OBR forecast. But the challenges for John Healey continue to mount. Thanks to the new data for July, borrowing for the year to date was £2.3billion higher than the OBR expected, driven by higher spending, despite the UK economy performing better than expected in the first half of the year. Money will need to be found for unfunded spending commitments made by both the Starmer and Burnham governments since the last forecast. Much more significant for the Autumn Budget, though, will be the economic impact of the war in the Middle East and the global rises in the cost of government borrowing. The Foundation recently estimated that headroom against the Chancellor’s fiscal rules (around £24 billion at the Spring forecast) had shrunk to £8 billion, though market turmoil over the past few days is likely to have reduced it even further. Elliott Christensen, senior economist at the Resolution Foundation, said: “Stronger growth in the first half of the year contributed to strong tax receipts in July. But it has failed to deliver a wider public finances windfall as the economic impact of conflict in the Middle East has taken its toll on borrowing costs. “The Chancellor’s margin against his fiscal rules is now razor thin, with the healthy headroom of around £24 billion last spring likely to have fallen below £8bn. “He should use his first Budget to put the public finances on a firmer footing and ensure that any new policy announcements are fully funded.”
