The Office for Budget Responsibility (OBR) will publish its Spring forecasts on March 3. Bank of America Global Research, in a note dated Wednesday, expects the update to feature little in the way of new tax or spending measures, reflecting the Chancellor's choice to confine major fiscal events to an annual Autumn statement rather than multiple statutory updates.
That decision, BofA said, reduces the odds of significant fiscal changes alongside the Spring forecast. A limited chance remains, however, that the government may introduce giveaway measures ahead of local elections in May.
Headroom and the drivers behind it
BofA estimates that fiscal headroom - the margin the government has before breaching fiscal targets - will widen modestly from £21.7 billion at the November Budget to roughly £24 billion in the Spring Forecasts. The brokerage cautioned that this projection carries uncertainty.
The primary contributor to the improved headroom is a fall in debt interest costs, which BofA attributes to lower Bank Rate and softer gilt yields since November. That move is likely to trim interest expenses by about £5 billion. Offsetting factors are expected to subtract roughly £3 billion from the headroom; these include weaker-than-expected economic growth, lower inflation, a rise in unemployment and policy changes enacted since November.
Growth, labour market and inflation expectations
On growth, BofA notes that 2025 GDP registered at 1.3%, below the OBR's November projection of 1.5%. The brokerage expects the OBR to mark down 2026 growth by 20 basis points and to present a slightly smaller economy by 2029-30 - about 0.2 percentage points smaller - which would modestly reduce fiscal headroom.
Labour market data show unemployment edging higher to 5.2%, compared with the OBR's 4.9% estimate for 2026. Inflation outturns for 2025 printed at 3.4%, marginally under the OBR's 3.5% forecast. BofA expects the OBR to trim its 2026 inflation projection by 10 to 20 basis points.
Borrowing and near-term public finances
Through January, borrowing in fiscal year 2025-26 ran at £112 billion, roughly £8.3 billion below the OBR's November forecast. BofA attributes that undershoot to lower government spending and stronger-than-anticipated receipts from self-assessment and capital gains taxes.
On a full-year basis, BofA forecasts 2025-26 borrowing at £130 billion versus the OBR's November projection of £138.3 billion. For 2026-27, the brokerage expects borrowing to drop to £109 billion, about £3 billion under the OBR's earlier forecast of £112.1 billion.
Ongoing fiscal pressures
BofA cautions that material fiscal pressures remain. One uphill risk is defence spending: if commitments rise above the current plan of 2.5% of GDP by 2027 and move toward 3% of GDP by 2029-30, that could add between £13 billion and £14 billion to public expenditure.
Funding gaps elsewhere are also unresolved. Government plans have not yet identified financing for an estimated £6 billion shortfall in special educational needs and disabilities (SEND) spending by 2028-29.
Net migration introduces further uncertainty. Preliminary figures put net migration at 204,000 in the year ending June 2025, down sharply from 649,000. The OBR previously calculated that a sustained reduction in net migration of 200,000 per year could increase borrowing by between £13 billion and £20 billion.
Other drivers of fiscal pressure cited by BofA include uncertainty over fuel duty and tax rises that are scheduled to be backloaded. "Fiscal pressures haven’t gone away, but we don’t expect them to be addressed in March forecasts," the note said.
Gilt issuance plans and the financing remit
The UK Debt Management Office (DMO) will publish its 2026-27 Financing Remit alongside the Spring Forecast. BofA projects gross gilt sales of £235 billion in 2026-27 - a reduction of £69 billion compared with 2025-26. The brokerage also expects the DMO to raise an additional £15 billion through Treasury bills.
BofA places the Gross Financing Requirement for 2026-27 at about £262 billion, which is £13 billion below the DMO's November illustrative figure of £275 billion.
In terms of the maturity mix, BofA anticipates issuance will be divided with 46% allocated to short-dated gilts, 23% to medium maturities, 11% to long-dated bonds, 10% to index-linked debt, and around 10% left unallocated.
The brokerage observed that supply in the medium-dated sector remains elevated relative to levels seen before quantitative tightening. Strategically, BofA said it prefers long positions in UK rates versus Germany and has a preference for real-curve flatteners.
Sterling and event risk
On currency, BofA does not anticipate the Spring Forecasts themselves will trigger marked sterling volatility. The firm described the current setup as distinct from the market stress experienced in November 2025, noting that "Both idiosyncratic vol premium and event risk premium are largely absent."
Instead, BofA identified domestic political uncertainty as the more significant near-term threat to the pound. Specifically, a possible leadership challenge toward the end of May could be "far more pervasive for GBP than OBR Forecast revisions," the note said.
This analysis compiles BofA Global Research's expectations and the fiscal variables they highlight ahead of the OBR's Spring Forecasts.