Chancellor John Healey may have only around £12 billion in fiscal headroom by autumn, a significant drop from £23.6 billion estimated earlier this year, according to a report by the accounting firm KPMG. This decline is due to increased borrowing costs and slower economic growth, which have together reduced the government’s financial flexibility by nearly £12 billion. The report highlights that rising interest rates on the UK’s national debt, triggered by the Middle East conflict, have already cut £9 billion from the headroom. Additional reductions are expected from weaker economic performance and potential downward revisions by the Office for Budget Responsibility (OBR), which provides independent economic forecasts for the government. With limited fiscal headroom, the Chancellor may struggle to offer substantial support for economic growth or relief for households facing high living costs during the upcoming Budget in October. To restore the previous level of financial flexibility, the government might need to either raise taxes or cut spending. However, with a commitment to avoid increasing taxes on working people, the Chancellor may have to explore other options, such as increasing taxes on corporations or high-income earners. Long-term borrowing costs have risen sharply due to a sell-off of UK government bonds (gilts), driven by concerns over inflation and expectations of higher interest rates. These pressures are expected to leave Mr. Healey with only “limited room for manoeuvre” during his first Budget on October 28, according to KPMG. The firm predicts that UK interest rates will rise to 4% in November, but may begin to decline by next summer as the impact of energy prices on inflation eases. Inflation, which reached 3.1% in August, is expected to rise to around 3.5% in the autumn and peak at approximately 4% in early 2025. KPMG forecasts that the UK economy will grow by 1.3% in 2026, with a slight slowdown in the second half of the year as inflation continues to affect consumer spending. Growth is expected to rise slightly to 1.4% in 2027. These projections reflect the ongoing challenges of balancing economic recovery with rising borrowing costs and inflationary pressures.