UK Productivity Downgrade Expected to Create £20bn Budget Deficit Ahead of Reeves Budget

The UK Chancellor, Rachel Reeves, is facing a significant fiscal challenge ahead of the November 26 Budget due to a substantial downgrade in productivity forecasts by the Office for Budget Responsibility (OBR). This downgrade, estimated at 0.3 percentage points, is expected to create a £20-21 billion hole in the public finances, increasing the difficulty of meeting fiscal targets such as reducing borrowing and government debt as a share of national income. The downgrade reflects a persistent failure in productivity growth, attributed partly to long-term economic issues including the 2008 financial crisis and Brexit. In response, Reeves has acknowledged the possibility of both tax rises and spending cuts to address the shortfall and maintain fiscal resilience against future shocks. Speculation includes potential income tax increases and a possible mansion tax, though the Treasury has refrained from commenting on specific measures. The fiscal challenge is compounded by higher-than-expected borrowing earlier in 2025, adding pressure on the government's ability to meet its fiscal rules and deliver sustainable public finances.