UK Budget Reveals Wider Borrowing Path as US Goods Trade Deficit Hits 18-Month High

UK Chancellor John Healey delivered his budget statement on October 28, with the Office for Budget Responsibility projecting government borrowing at 4.2% of GDP in 2026-27, up from a March forecast of 3.6%, and well above the 5.2% recorded in 2024-25. The OBR now sees the deficit falling gradually to 1.8% of GDP by 2031-32, while net financial debt is forecast to peak at 83.1% of GDP in 2029-30 before easing to 82.3% in 2030-31. The government's fiscal headroom against the spending rule came in at £15 billion, nearly matching the £15.2 billion expected by analysts but sharply below the £23.6 billion headroom recorded in March. Healey also warned that the UK will spend £14 billion more on debt interest this year.

The OBR's growth projections were mixed. The 2026 forecast was nudged up to 1.2% from 1.1%, but the 2027 outlook was cut sharply to 1.0% from 1.6%, representing the most significant downgrade in the forecast series. Growth is then seen recovering to 1.6% in 2028, 1.8% in 2029, 1.7% in 2030, and 1.6% in 2031. A separate Bloomberg report indicated that a planned bank tax hike would be temporary and come in below 8%, less severe than the City had feared.

Separately, the US advance goods trade deficit widened 2.1% in September to $134.9 billion, its largest since March 2025 and well above the consensus forecast of around $130.2 billion. Imports rose 2.4% month-on-month, driven by a 7.5% surge in capital goods including computers, semiconductors, and telecommunications equipment linked to AI data center buildout. Exports also rose 2.6%, beating the 1.3% estimate and outpacing the prior month's 1.9% gain, but were not enough to offset the swelling import bill. The August deficit was revised to $132.1 billion from the initially reported $132.6 billion. US wholesale inventories rose 0.6% in September, above the 0.5% estimate, while retail inventories gained 0.3%, in line with forecasts.