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Research Briefing | Feb 28, 2025

Defence spending could still pose a fiscal challenge

We think the UK’s commitment to fund an increase in defence spending to 2.5% of GDP by cutting the overseas aid budget will not provide a substantial boost to growth.

What you will learn:

  • If in cutting overseas aid spending, the government is reducing day-to-day spending to fund defence spending that will be spread across both current spending and capex then itĀ couldĀ help the Chancellor to preserve a little fiscal space at the Spring Forecast on March 26.
  • This may not be the final word on defence spending since the NATO defence spending target could be lifted to at least 3% of GDP at its summit later this year.
  • Given Labour’s commitment to its “non-negotiable” fiscal rules, defence spending could become a fiscal constraint on the current government.
Tags: Economic GrowthFiscal policyPoliticsUK
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