The structural deterioration in the fiscal situation suggests that a tight grip on the public finances in the Budget on 30th October will be necessary. That’s why we think the government will maintain existing plans for fiscal policy to be tightened, but with higher spending fully funded by higher taxes. We have not changed our GDP forecast as the boost to growth from a more growth-friendly composition of policies in the Budget is offset by a drag from inflation having been higher than we thought. But the upward revision to our inflation forecast means we now expect interest rate cuts to happen a bit slower than we previously thought.
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