Box C: What Happened to the Fiscal Black Hole?

National Institute of Economic and Social Research ()

National Institute Economic Outlook, 2026, issue Winter, 36-38

Abstract: In the run-up to the November Budget, there was widespread expectation that the Chancellor would face a substantial shortfall against her fiscal rules, potentially running into the tens of billions of pounds, following the OBR's productivity downgrade. Instead, the OBR's premeasures forecast showed the rules being met with £4.2 billion of headroom. While this figure excluded the cost of unrealised welfare savings that did not pass through Parliament earlier in 2025, it nevertheless represented a markedly stronger outcome than most external forecasters had anticipated. This included NIESR: our Autumn 2025 Outlook projected a pre‐measures current budget deficit of £38.2 billion in 2029‐30. This box examines the sources of the divergence between the OBR's assessment and NIESR's forecast. The difference reflects a combination of changes in the OBR's own judgements between March and November, and differences in conditioning assumptions between the OBR and NIESR, including the interest‐rate path, unemployment, trend growth and household saving behaviour. We unpack the main channels below.

Date: 2026
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