UK Chancellor Faces Tax Rise Pressure as Fiscal Headroom Shrinks to £12bn, KPMG Warns

Britain's Chancellor will be forced to raise taxes in the October 28 Budget after surging borrowing costs cut fiscal headroom to about £12bn from £23.6bn, KPMG said on September 21, 2026. Inheritance tax and capital gains tax are the most likely targets. The erosion stems from rising gilt yields, partly driven by the war in Iran and high energy prices. Ten-year gilt yields have reached 5.41pc, a 19-year high, while 20-year yields approach 6pc, up from 5pc at the start of the year. KPMG chief economist Yael Selfin said maintaining headroom similar to spring levels would be "wise" given medium-term shock risks. The firm projected GDP growth of 1.3pc and average inflation of 3.1pc this year, with the Bank of England expected to raise rates to 4pc by November. Citi warned earlier this month that any sign of slipping headroom would hit UK fiscal credibility.