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Despite UK government borrowing slightly undershooting forecasts so far this financial year, tax rises in the autumn are likely.

That’s the view of City consultancy Capital Economics, who told clients this morning:

Despite the overshoot in May, public borrowing was £2.9bn below the OBR’s forecast in the first two months of the fiscal year. That said, the OBR may still revise up its borrowing forecasts from March in the Autumn Budget.

That and already-tight spending plans mean tax hikes later this year appear increasingly likely.

Last week, ther was a flurry of predictions of tax rises after chancellor Rachel Reeves outlines the government’s spending plans for the next few years.

Capital Economics predict the OBR could revise up its debt interest payments and borrowing forecasts in the Autumn Budget, given recent increases in borrowing costs, while the cooling in the labour market means income tax receipts are unlikely to keep exceeding expectations.

They add:

We doubt it will get much better for the Chancellor anytime soon, as her £9.9bn buffer against her fiscal mandate may be wiped out at the Autumn Budget.

The u-turns on benefit and welfare spending, downward revisions to the OBR’s productivity forecasts and higher borrowing costs may mean to maintain her current £9.9bn buffer, Reeves has to raise £13-23bn later this year. And with the gilt market sensitive to significant increases in borrowing, all this means tax rises are looking increasingly likely.