U.K. Finance Minister Rachel Reeves is set to unveil major spending cuts on Wednesday to address a budget shortfall caused by rising borrowing costs. Her Spring Statement will outline economic forecasts and new fiscal measures as the government navigates a challenging economic landscape.
Fiscal constraints and economic outlook
Reeves remains committed to her fiscal rules, ensuring government spending is covered by tax revenues and that public debt decreases by 2029-30. However, the Office for Budget Responsibility (OBR) is expected to downgrade growth forecasts for 2025, reducing its previous 2% estimate. This could force Reeves to cut public spending by around £10 billion ($12.96 billion).
Rising borrowing costs have eroded the government’s fiscal headroom, increasing pressure on Reeves to implement austerity measures or modify her fiscal rules. Economic uncertainty, exacerbated by inflation concerns and global trade shifts, adds further strain.
Key budget measures
The Treasury has signaled that Reeves' plan will focus on "security and national renewal." She is expected to announce a £2.2 billion ($2.6 billion) defense spending boost, aiming to reach 2.5% of GDP.
Economists predict the government will introduce cuts to welfare spending and reduce Civil Service administrative costs by 15% by 2030. Analysts from Barclays anticipate that additional cost-saving measures will be delayed until after 2027.
Business and fiscal strategy
Reeves has ruled out immediate tax increases but may revisit the issue later this year. Her previous tax hikes on businesses to fund public services sparked concerns about investment and economic growth. Despite these challenges, she insists on maintaining fiscal discipline while prioritizing economic expansion.
As the government tightens spending, businesses and policymakers will closely watch the impact on economic growth, public services, and future taxation policies.