Reeves Faces Cabinet Pressure Over Autumn Budget as Growth Forecasts Slip

Rachel Reeves is facing intensifying pressure from senior Cabinet colleagues to soften her fiscal rules ahead of the autumn Budget, after the Office for Budget Responsibility revised its UK growth forecast downward for the third consecutive quarter, Treasury insiders told ZenNews this week.

The Chancellor, who staked her political reputation on what she called a “non-negotiable” commitment to balance day-to-day spending against revenues within three years, is now operating with a narrower margin than she anticipated when she delivered her first Budget last October. The OBR now projects GDP growth of 1.2 per cent for 2026, down from an earlier forecast of 1.6 per cent.

Pressure from the Cabinet

At least three senior ministers — including the Business Secretary and the Chief Secretary to the Treasury — have privately lobbied for a loosening of the supplementary debt rule that governs capital investment, according to two people with direct knowledge of the discussions. Their argument is that tighter fiscal headroom is suppressing infrastructure spending at precisely the moment when the UK needs to accelerate its green energy transition.

Reeves has so far rebuffed those approaches, telling colleagues in a recent Cabinet sub-committee that abandoning the rules so soon after announcing them would send “precisely the wrong signal” to gilt markets and risk a repeat of the bond-market turbulence that followed the Truss mini-Budget of September 2022.

Gilt yields on ten-year UK government bonds have edged up 18 basis points since April, a modest but notable move that Treasury officials say vindicates the Chancellor’s caution. The Debt Management Office confirmed this week that it has no plans to alter its gilt issuance calendar ahead of the October statement.

What the Markets Are Watching

City economists broadly support Reeves’s resolve, even as they acknowledge the political difficulty of her position. “The worst thing she could do right now is signal that the rules are negotiable,” said one senior economist at a major investment bank, speaking on condition of anonymity. “Markets have priced in the rules. Any waver would reprice gilts sharply.”

The pound edged lower on Wednesday after the growth revision was published, briefly touching $1.2680 before recovering. Sterling’s sensitivity to fiscal signals has remained elevated since the Truss episode, and any Budget shift would be scrutinised intensely by foreign-exchange traders.

The pressure on Reeves comes at a delicate moment for the wider economy. Consumer confidence, as measured by GfK’s monthly survey, improved marginally in April but remains negative overall, with households citing mortgage costs and food prices as their primary concerns. Wage growth, while still running ahead of inflation in nominal terms, has decelerated from the peaks of 2024.

Investment Plans Under Scrutiny

The Chancellor’s supporters argue that her caution is not timidity but strategic patience. A senior Labour MP on the Treasury Select Committee said: “Rachel has a longer game in mind. Once the fiscal position is demonstrably stable, she can make the case for more investment. Rushing it now would hand the Conservatives a narrative.”

That calculus may be tested by the autumn statement, which is expected in late October. By then the OBR will have produced a fresh forecast, and Reeves will need to show either that the headroom has widened or that she has a credible plan for stimulus if it has shrunk further.

Earlier this month, the Bank of England held interest rates at 4.75 per cent, citing persistent services inflation, a decision that limits the scope for monetary easing to offset any fiscal tightening. The interaction between monetary and fiscal policy is now a source of quiet friction between Threadneedle Street and the Treasury.

Labour backbenchers in northern English constituencies are meanwhile growing restless. Several have written to the Chancellor requesting a meeting before the summer recess to discuss what one MP called “the hollowing out of regional capital budgets.”