Morgan Stanley: The UK may face more financial pressure in the 2027-2028 fiscal year.

In a report, Morgan Stanley strategists said that the UK government may have difficulty balancing the need for expenditure with the need to control public finances in the financial year beginning in April of next year. They stated that the growing demand for public expenditure, including plans to increase defense spending, could put pressure on public finances. "In our view, achieving a flat real-terms baseline for recurrent expenditure from the 2027/2028 financial year onwards will be extremely challenging." They said that the expenditure review in 2027 will be a "key fiscal risk." UK government bond yields have already fallen, following Chancellor Rachel Reeves' decision in the November budget to increase the fiscal headroom from 9.9 billion to nearly 22 billion.