Delivering her spring statement to the UK’s Parliament, Chancellor Rachel Reeves announced that updated forecasts of the Office for Budget Responsibility (OBR) suggest a 1.0% increase in the UK's GDP this year, down from its autumn estimate of 2.0%.
The chancellor stated that she is not satisfied with these predictions and noted that international factors are weighing on growth.
Against the background of the UK growth downgrade, Reeves outlined a GBP6.0 billion reduction in government spending and pledged to stick to her fiscal rules, set in the October budget. She added that the UK is estimated to be GBP4.1 billion in deficit in 2029/30, if she had not taken new measures.
Reeves also announced an additional GBP2 bln per year in capital spending compared to autumn. According to her, this step aims "to drive growth in our economy and deliver in full our vital commitments on defence."
According to OBR's updated estimates:
- British GDP is forecast to grow 1.9% in 2026, 1.8% in 2027, 1.7% in 2028, and 1.8% in 2029;
- The country's CPI inflation is seen to average 3.2% this year before easing to 2.1% in 2026 and meeting the BoE's 2% target from 2027 onwards;
- The BoE's Bank Rate is expected to decrease from its current level of 4.5% to 3.8% from mid-2026 onwards. Expectations are, on average, around a 0.25 percentage point higher than in the October forecast;
- The UK's unemployment rate is predicted to peak at 4.5% (1.6 mln people) in 2025, before dropping to its estimated structural rate of 4.1% in 2028;
- Public sector net borrowing (PSNB) is forecast to fall from GBP137.3 bln (4.8% of GDP) this year to GBP74.0 bln (2.1% of GDP) in 2029/30. Compared to the October forecast, it is higher by GBP12.1 bln (0.4% of GDP) in 2025/26 declining to GBP3.5 bln (0.1% of GDP) in 2029/30;
- Tax as a share of GDP is seen to increase from 35.3$ this year to a historic high of 37.7% in 2027/28 and remain at a high level for the rest of the forecast;
- Public spending is predicted to rise to 45.0% of GDP next year, before declining over the remainder of the decade to 43.9% of GDP in 2029/30;
- Public sector net debt (PSND) is largely flat over the forecast at 95.9% of GDP this year and 96.1% of GDP in 2029/30