PwC economists comment on the Chancellor’s headroom choices and market reaction

Jake Finney, Senior Economist at PwC, reacts to the Autumn Budget 2026:

“The Chancellor has opted for a ‘buying time’ Budget, addressing some of the immediate pressures while leaving some of the tougher decisions for later. The result is a modest package of additional spending and taxation, while accepting a thinner buffer against the fiscal rules. 

“There is a case for that approach. Despite an unstable backdrop, this is only the second time in the past five years that adverse developments in the economic outlook have materially reduced the Chancellor’s headroom. This gives some justification for absorbing part of the hit rather than rebuilding the buffer immediately. And with the OBR judging that growth is moving in the right direction this year, he will be reluctant to jeopardise that with a larger fiscal tightening now. 

“But it does mean that some of the harder decisions remain unresolved, with unprotected departmental budgets under pressure and the path to higher defence spending still to be funded. Fully addressing those pressures could require the government to find around £15-30bn over the coming years. And with just £15bn of headroom, around half the average margin left by previous Chancellors since 2010, it would not take much of a deterioration in the outlook to force the Chancellor into further difficult tax and spending decisions.” 

Commenting on the market reaction to the Autumn Budget 2026, Adam Deasy, Economist, PwC says: 

“A Budget with few big surprises has kept markets initially calm while they digest the details. Gilt yields fell slightly immediately following the speech, but remain within their recent range, suggesting investors may be taking the reduction in fiscal headroom to £15bn in their stride. 

“Measures to ease energy bills may take some pressure off household costs but are unlikely to fundamentally alter the inflation outlook. With inflation still highly uncertain, the Budget has done little to shift market expectations for the path of interest rates.” 

Our full budget reaction