IFS: budget will be ‘work of fiction’ without clear plan to cover UK spending pressures

AI desk brief

The IFS says John Healey’s October budget risks looking like a “work of fiction” unless he sets out how to cover about £35bn of spending pressures from higher inflation and defence commitments. It warns that leaving spending plans unchanged would imply chunky real-terms cuts to public services, while the Middle East war-driven bond selloff and higher debt costs are already eroding fiscal headroom.

The thinktank estimates the inflation shock could cut spending power sharply even if higher tax receipts offset some of the borrowing hit, and says meeting the fiscal rules with credible departmental envelopes will likely require tax rises or benefit cuts. For metals, the key transmission is a weaker UK fiscal backdrop with bond-market stress and inflation persistence, which is modestly supportive for safe-haven demand and rates-sensitive gold sentiment.