UK Budget, Inflation and Insolvency Risks Dominate Business Briefing
Before the 28 October Budget, the Institute for Fiscal Studies estimates about £35bn of pressure on public spending, with inflation, defence commitments and possible cuts outside health and defence contributing. Inflation is at 3.1%, and analysts warn energy costs could push it above 4%, while August GDP is expected to shrink by 0.1% to 0.3%. Retailers and business groups are seeking relief from employment taxes and operating costs, and UK capital markets face pressure to draw in investment and keep expanding firms in the country.
Ahead of the 28 October Budget, the Institute for Fiscal Studies puts spending pressure at about £35bn. Its breakdown includes roughly £9bn of reductions outside health and defence, £15bn linked to inflation, and £11bn to lift defence outlays to 3% of GDP by 2030. Projected fiscal room is near £21bn, though estimates are uncertain.
August GDP is projected to contract by 0.1%–0.3%, following firmer June and July activity. White-collar and administrative output may have cooled, while factory activity is expected to be flat. Pantheon forecasts a 0.3% drop; RSM sees 0.1% but quarterly growth of 0.4%–0.5%. Consumer price growth is 3.1%, with a possible climb past 4% if energy bills remain costly.
If inflation remains elevated and borrowing costs stay high, households and businesses could face tighter budgets. SMEs may encounter slower invoice payments and greater insolvency risk, while retailers and employers might pass on costs or delay hiring. Public services could feel spending constraints, and uncertainty before the Budget may weigh on investment and growth. These effects would not be evenly shared, with lower-income and credit-dependent groups potentially most exposed.