While January’s disappointing public finances figures may not be as bad as they first appear, they continue the run of bad news for the Chancellor in 2025 and underline the difficult choices she faces. While there is increasing pressure on the government to commit to higher defence spending, the Office for Budget Responsibility is likely to conclude that the Chancellor’s headroom against her fiscal rules has been wiped out and she will probably need to tighten fiscal policy as a result.
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