Even small tweaks in the economic forecasts being prepared for UK Chancellor of the Exchequer John Healey could be the difference between a painful or painless budget this month.

While the focus has been on the blow to Healey from the surge in borrowing costs caused by the Iran war, there is one key component that may yet fall in his favor.

Economists calculate that as much as £9 billion ($12 billion) could be added to his fiscal buffer from the Office for Budget Responsibility upgrading its wage growth forecast at the budget on Oct. 28, enough for Healey to avoid any major tax rises or spending restraints.

Forecasters believe the OBR’s March forecast may be too pessimistic about earnings, particularly in the context of an inflationary shock that could cause workers to demand compensation for lost purchasing power.

Dan Hanson, chief UK economist at Bloomberg Economics, said in an analysis published Wednesday that the OBR’s wage forecast “looks too low” and is a “big upside risk to the outlook for the public finances.”

“We think a large revision is unlikely at the upcoming budget but a modest adjustment is very possible,” he said. “That could mean Healey only has to confront a small deterioration in the public finances, alleviating pressure to announce measures to course correct the fiscal deficit.”Ruth Gregory, deputy chief UK economist at Capital Economics, said the chancellor “could get lucky” and that his headroom would be £8 billion higher if the OBR revised its wage growth forecasts to be in line with its own. The Institute for Fiscal Studies said a plausible scenario could leave tax revenues on income up £9 billion compared to the March forecast.

A judgment the OBR will have to make is whether the energy shock creates second-round inflation effects. Like the Bank of England, it will have to decide whether workers have enough bargaining power in a subdued labor market to bid up wages.

The appointment of ex-BOE rate-setter Jonathan Haskel as the OBR’s new chair could be crucial to this assessment. Haskel argued in 2023 that the “non-accelerating inflation rate of unemployment” — the lowest point the jobless rate can be without pushing up wages and prices — is likely to be higher post-pandemic. That could mean the labor market is less loose than thought, which would then likely result in stronger wage pressures.

“Persistently high inflation could push up wages,” said Debapratim De, chief economist at Deloitte UK. “It’s one channel through which, especially given fiscal drag, the government could see a higher than usual rise in receipts. But that is contingent on incomes responding to inflation.”Healey’s predecessor, Rachel Reeves, benefitted from a wages upgrade at last year’s budget, helping to mitigate the damage done by downgrades to productivity growth.

Much will depend on which of the more speculative elements in the forecast the OBR decides to revise or maintain. For instance, projections on migration and housebuilding could alternatively hinder Healey in his quest to balance day-to-day spending with tax revenue in 2029-30. Back in March, the OBR judged the UK government was meeting that rule by £23.6 billion before gilt yields soared to their highest in decades.

In March, the OBR predicted that earnings would rise 3.4% this year, before wage growth cools to 2.4% in 2027 and 2.1% in 2028. But with inflation predicted to top 4% early next year, some BOE policymakers have warned that pay pressures may not ease as much as thought.

“The OBR has been pretty pessimistic in recent years about earnings, but we would expect higher inflation to feed through to some degree to higher nominal earnings,” said Nick Ridpath, research economist at the IFS.