Reeves seizes on OBR forecast to say UK economy is on the right path

It is time to end our live coverage of the spring statement.

The spring statement leaves the government’s near-term fiscal projections broadly unchanged, with borrowing forecast to fall over the coming years and debt stabilising as a share of GDP by the end of the decade. Inflation is expected to decline and medium-term growth assumptions remain largely intact.

However, the outlook was finalised before the latest escalation in the Middle East and the subsequent rise in energy prices and gilt yields. Economists said sustained increases in oil and gas prices could complicate the inflation path and affect expectations for interest rate cuts.

The Office for Budget Responsibility said significant risks surround its projections, with outcomes potentially substantially above or below its central forecast.

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PHG

The OBR slightly lowered its forecast for UK economic growth this year in its spring forecast. The fiscal watchdog said it now expected the UK’s gross domestic product (GDP) to grow 1.1% in 2026, down from a forecast of 1.4%, given in its November outlook.

One area of focus going into the spring forecast has been the UK’s weakened labour market, in particular the rate of unemployment among young people.

The OBR also lowered its forecasts for government borrowing in its latest outlook.

“Public sector net borrowing is projected to fall in the central forecast from 5.2% of GDP in 2024-25 to 4.3% of GDP this year and then to 1.6% of GDP in 2030-31,” the OBR said.

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Andrew Hunter, associate director and senior economist at Moody’s, said: “The UK chancellor’s spring statement pointed to a little-changed near-term fiscal outlook, but that was before the conflict in the Middle East started driving up energy prices and UK government bond yields.

“Concerns over potential disruption to energy supply have caused prices for crude oil and, in particular, natural gas to jump which could put renewed upward pressure on consumer price inflation. The UK 10-year gilt yield has surged back above 4.5 % in recent days, from a low of close to 4.2 % last week, on the expectation that further policy rate cuts by the Bank of England may now be delayed. This leaves long-term yields marginally higher than their level in late November.

“Although there is plenty of uncertainty over how the conflict will evolve and whether the jump in energy prices will be sustained, this provides yet another illustration of the UK economy’s vulnerability to external shocks and underscores that concerns over the public finances and the government’s ability to stick to its fiscal targets will persist.”

The National Institute of Economic and Social Research said the Middle East crisis could affect the UK’s fiscal outlook.

David Aikman, NIESR director, said: “The improved borrowing position announced in today’s Spring Statement has been overshadowed by the Middle East crisis.

“The market has repriced sharply since yesterday: 2-year gilt yields have risen from 3.5 % to 3.9 %, while Brent crude now stands at $80 a barrel, some 18 % above the OBR’s forecast assumption.

“This reflects a significantly reduced likelihood of a Bank of England Spring rate cut.

“If the crisis persists, higher energy prices will feed through to inflation, increasing borrowing costs further, putting serious pressure on the fiscal outlook.”

If oil and gas prices remain at current spot levels, UK consumer prices could rise by up to 1 %, a risk not reflected in the OBR’s latest forecasts.

The fiscal watchdog’s projections, published on Tuesday, were finalised before the US and Israeli attacks on Iran at the weekend.

However, David Miles, a senior OBR official, told reporters that despite the effects of the conflict not being accounted for in the most recent forecasts, the situation was “a long way short of where we were after the Russian invasion [of Ukraine].”

The chancellor missed an opportunity to address rising unemployment, according to the chief executive of the Resolution Foundation.

“The chancellor may have succeeded in delivering a statement free from news today, but with growth weak, unemployment rising, and the risk of further energy price shocks, the UK’s economic woes demand bolder and swifter action,” Ruth Curtice said.

Amid the prospect of higher unemployment, “the chancellor missed the opportunity to tackle this head on by expanding the Jobs Guarantee,” she added.

The OBR forecast an unemployment rate of 5.3 % this year, while close to one million young people are not in education, employment or training.

Helen Miller, director of the Institute for Fiscal Studies, said the news is not the change in forecasts since November but the forecasts themselves.

The Office for Budget Responsibility has increased its estimates for capital gains tax (CGT) compared with the autumn budget 2025.

Between 2025-26 and 2030-31, CGT is now expected to raise £19.9 bn more than previously forecast. Receipts are projected to reach £34.9 bn in 2030-31 – a £5.1 bn increase on the autumn budget estimate.

Simon Martin, head of UK technical services at Utmost, said: “Following record-breaking capital gains tax receipts in January 2026, the OBR has now substantially uprated its projections for the rest of the decade by around £20 bn over the next six years. It demonstrates that, far from being a one-off consequence of asset disposals, the increased rates and other policy changes announced at the autumn budget 2024 are creating a significant, longer-term trend of accelerating CGT collections.

“The OBR also references rising equity prices as a key driver of expanding CGT receipts with returns around 8 % higher than forecast at the autumn Budget, further contributing to the increased tax take.

“CGT is no longer a marginal consideration in long-term wealth planning, and a tighter fiscal regime further increases the premium on forward planning. Entrepreneurs contemplating business sales, families managing intergenerational wealth transfers and globally mobile individuals with multi-jurisdictional assets will all need to reassess the timing and structure of disposals.”

The government is on track to miss its target to build 1.5 million homes by the end of the current Parliament, the economic forecaster has said.

The Office for Budget Responsibility predicted net additions to Britain’s housing stock would fall from the recent average of 260,000 to a low of 220,000 in 2026-27.

New homes are then expected to rise sharply as a result of planning reforms introduced by Angela Rayner, the former housing secretary, and Steve Reed, her successor, with more than 305,000 a year.

The OBR said: “Compared to November, stronger out-turn and near-term indicators boost the forecast slightly in the short term, but it is broadly unchanged in the medium term. This leaves cumulative UK net additions between 2025-26 and 2029-30 at 1.3 million, around 30,000 higher than in November.”

David Miles, from the OBR’s budget responsibility committee, said its predictions that inflation will fall to target levels early this year have become “more uncertain” after jumps in oil and gas prices linked to recent attacks in the Middle East.

He said: “I think what will happen to inflation is particularly uncertain in the past few days.

“As I mentioned earlier and we all know, there have been very large increases in gas prices and oil prices.

“Our central expectation had been that inflation would fall back towards the Bank of England’s 2% target early this year and will be around that level at the end of the year.

“There must be more uncertainty around that right now.”

In its forecast, the OBR explained: “Conflict in the Middle East, which escalated as we were finalising this document, could have very significant impacts on the global and UK economies”

David Rees, head of Global Economics at Schroders, said:

Grant Slade, economist at Morningstar, has provided insight on the outcome and its implications

Borrowing is set to reduce by “nearly £18bn compared to the autumn”, with public sector net borrowing expected to fall from 4.3% this year to 3.6% next year, before hitting 1.8% in 2029-30, Rachel Reeves said.

The chancellor told the Commons: “In their forecasts today, the Office for Budget Responsibility show that we are set to reduce borrowing by nearly £18bn compared to the autumn.

“This year we are set to borrow less than the G7 average, something the Tories never achieved in fourteen years. The forecast today shows that public sector net borrowing is set to fall from 4.3% this year, to 3.6% next year, then 2.9%, 2.5%, and 1.8% in 2029-30.”

The Office for Budget Responsibility has also lowered its inflation forecast for this year, although the projection was drawn up before the war in Iran and may already be out of date.

The OBR now predicts CPI inflation will fall to 2.3 % in 2026, down from 2.5 % in its November forecast. The fiscal watchdog continues to expect inflation to run at 2 % per year from 2027, unchanged from previous projections.

Lale Akoner, global market analyst, said:

Neil Wilson, UK investment strategist at Saxo Bank, said:

Susannah Streeter, chief investment strategist at Wealth Club, said:

The Office for Budget Responsibility has raised its unemployment forecast significantly.

The OBR’s new central forecast is that the unemployment rate rises from 4.75% in 2025 to a peak of 5.3% in 2026.

Back in November, unemployment was expected to hit 4.9%, making this a big downgrade. The OBR has also raised its forecast for 2027 to 4.9%, up from 4.6% previously.

The OBR said: “Labour market weakness still appears to be driven primarily by entrants into the labour force struggling to find work amid subdued hiring demand. We expect this weak demand to continue in the near term as output falls further below the economy’s supply potential.”

Looking further ahead, the OBR expects the unemployment rate to fall gradually to 4.1 % by 2030.

The Office for Budget Responsibility (OBR) has published its new spring forecasts. It says:

“Government debt as a share of GDP has nearly tripled over two decades, borrowing has remained around 5% of GDP for the past four years, and borrowing costs are among the highest of advanced economies.

“Against this challenging backdrop this interim forecast update is little changed from November. GDP growth averages 1½ per cent from next year and borrowing falls to around 1½ per cent of GDP in 2030-31, which would stabilise debt around 95% of GDP.

“Significant risks, including from conflict in the Middle East, mean outcomes both substantially above and below this forecast are possible.”

This last line acknowledges that the world has changed since the forecasts were drawn up.

Rachel Reeves closed her spring statement speech by insisting her plan was “the right one” in a defiant conclusion to her Spring Statement speech.

The chancellor said: “My plan is the right one. I am in no doubt about how great the rewards can be if we stay the course. The forecasts today confirm that the choices this government has made are the right ones.

“Stability in our public finances, interest rates and inflation falling, living standards rising, more children lifted out of poverty, more appointments in our NHS, more investment in our infrastructure, a growing economy, and more money in the pockets of working people.

“Mr Speaker, these are the right choices, this is the right plan, and I commend this statement to the House.”