EY puts UK Budget headroom at €13bn, with a €8bn deficit possible
EY estimates Chancellor John Healey’s fiscal headroom has fallen from €27bn in March to €13bn ahead of the 28 October Budget. If Middle East disruption keeps the Strait of Hormuz largely closed into 2027, EY says higher inflation, borrowing costs and weaker growth could turn that buffer into an €8bn deficit, leaving little room for new spending or tax relief.
Bottom line — A prolonged energy shock could erase EY’s €13bn buffer and put the Government’s fiscal rule at risk.
Go deeper 8
-
EY’s baseline assumes the Strait of Hormuz reopens around the end of the third quarter of 2026, with tanker traffic still subdued.
-
In EY’s adverse scenario, UK inflation reaches 6% by the end of 2026 and the extra hit to headroom is €21bn.
-
EY says higher gilt yields are the largest drag on the buffer, reducing it by an estimated €12bn through higher debt-servicing costs.
-
The CBI wants a €5.8bn package to cut some businesses’ energy costs by up to 20%; it also says UK business energy prices are 45% above the G7 average, according to The Telegraph.
-
The Telegraph reports the CBI says four in ten companies are cutting investment because of high energy costs.
-
EY says a faster fall in unemployment could lift headroom to about €47bn by 2028.
-
EY estimates a limited Budget based on already announced measures would need to raise at least €14bn; a more ambitious package could add another €47bn in spending.
-
The Resolution Foundation estimates headroom at about €12bn, below EY’s €13bn estimate.