According to UK chancellor, Rachel Reeves, today’s Office for Budget Responsibility (OBR) forecast shows the government’s choices “are starting to pay off”.
In two week’s time, she will reveal “three major choices that will determine the course of our economy into the future”. Specifically, strengthening global relationships, breaking down trade barriers, and harnessing the power of AI.
The OBR has increased its forecast for unemployment. This is now forecast to peak at 5.3% this year. In November, the OBR said unemployment would peak at 4.9%.
The OBR projects that inflation will fall from 3.4% in 2025 to 2.3% in 2026, and then again to 2% from 2027 onwards. It now forecasts that the 2% target for the UK inflation rate will be met in “late 2026”.
Pensions were not mentioned at the Spring Statement, but as we saw at the further invasion of Ukraine in 2022, regional and global conflicts can have a material impact on financial markets which may affect balances in pension members’ Defined Contribution plans. For those with many years left to retirement, this may not be of too much concern and may even allow for better long-term growth.
Those closer to retirement are hopefully in less volatile asset classes but I would encourage employers to review how their population is invested and consider whether they have sufficient de-risking factored in to their default fund choices.
Individual pension members may want to look for financial advice as to their upcoming pensions strategy to minimise negative impact on their pension withdrawals.”
Reeves reaffirmed her commitment to shave off £150 from the average household’s energy bills – but is this going to be sustainable in the face of spikes in oil prices which may increase further as today’s conflicts develop. We have to question where any subsidy is going to come from, given the understandable focus on defence spending as a direct result of the threat to national security from the wider world.”
And if there is upward pressure on inflation, then this will again push the cost of the state pension up due to the triple lock – arguably creating a further ratcheting up of costs to the Exchequer which need to be recouped from somewhere. I wouldn’t rule out higher taxes coming in the next Budget as a result.
Unsurprisingly, no mention of the changes to the non-domiciled regime that has been in force for nearly a year. But as the press and tax advisers report on the millionaires’ exodus from the UK, there has been little to no acknowledgement of the net effect on the UK economy. I am confident we won’t see a U-turn on non-dom policy as such (and similar reform was originally proposed by the now Opposition in any case), but the Government should consider further developing the new Foreign Income and Gains regime to attract outside investment in the UK.
And whilst Middle East conflict continues, we may in fact see a number of individuals looking to repatriate to the UK, even temporarily, for security reasons – in which case, I would welcome the Government’s confirmation of relaxed tax rules for returnees to the UK in these circumstances – such as relaxations on time spent in the UK before triggering UK residence.
The reality for many UK business leaders, is cost pressures and uncertainty is still as high as ever. Businesses are navigating an environment where wage growth and higher input costs are forcing leaders to rethink operational processes to prioritise productivity, automation and smarter use of existing resources to maintain profits. Strategies that focus around long-term business resilience remain extremely important to have the most chance at long term success.
Business leaders still want to invest and grow in the current economic climate, but they are doing so more selectively by investing in technologies that deliver clear efficiency gains in order to remain competitive. Many vendors are under pressure to deliver more value as demand shifts. In this turbulent market, businesses need to refocus their investments and operating models to keep pace with global change.
It was disappointing how much of the short speech was based on a repeated historical swipe about previous parliaments rather than focus on the here and now and the immediate future.
Clearly the statement couldn’t reflect the rapidly changing world environment and should have been grounded more in “actuals” rather than notoriously inaccurate multi-year forecasts. That said there are green shoots and we do have strengths, would have been good to hear more than snippets on how these could have been more of a focus than on more broad-based social justice initiatives – these still need funding outside of further tax rises which will be difficult to bear.
Ultimately growth forecasts have been downgraded, and unemployment rates confirmed to continue to rise is not a good headline for any government. The Chancellor chose to instead double-down on how her plan was right instead acknowledging it and talking to opportunities for growth. Borrowing is double what was forecasted since the elections. The OBR’s independence continues to an area of scrutiny and concern across all parties with many questions about integrity of the numbers presented.
£820m to support young people into employment has been announced again but is a drop in the ocean compared to those in this cohort out of work. It only promises 55,000 jobs.
This initiative was first announced in December and promises training and coaching for young people. In January 2026 Unemployment of young people (16-24) reached almost 1,000,000.
The Chancellor needs to address the barriers to employment for young people, including the fall in the drop in the National Insurance thresholds which resulted in the loss of many jobs for young people in retail, the leisure and hospitality sectors.
There was no mention of the 1.5m new homes target in the Spring Statement. It is disappointing that the Chancellor did nothing more to address the urgent need to train brick layers, plumbers, carpenters, plasterers and all of the other essential trades that are in such short supply on our building sites.
The shortage of workers in the construction sector has been identified as a key barrier to delivering against this target – and with youth unemployment now at c1,000,000 a major opportunity has been missed to address two key issues.
The Chancellor, Rachel Reeves has suggested that the Conservatives are ‘at fault’ for the number of young people who are so-called NEETs (i.e. Not in Employment, Education or Training). However, the reality is that Rachel Reeves’s decision to increase employer’s NIC and the National Minimum Wage – particularly for young people – has increased the numbers of young NEETs to over 16% of those between 16 and 24, since they came to power ca. 20 months.
It is interesting to note that Ms Reeves suggested that she would provide additional details about ‘closer cooperation’ with our European partners in the coming 2 weeks. Whilst no further details were provided in this regard, if Ms Reeves were to be serious about helping the British economy, it would be appropriate for her to push for the ‘Norway model’, whereby there is genuine free trade and free movement with the European Union. Whilst that model would allow the UK to continue seeking its own trade agreements with non-EU countries, it also helps ensure that interaction with key EU trading partners is easier, cheaper and smoother than it is presently.
Whilst Rachel Reeves spent a big part of today’s Spring Statement boasting about the recent fall in inflation to 3.0%, the reality is that the recent fall in inflation was largely due to the drop in fuel costs over the past few weeks, something which the Government has nothing to do with that fall and clearly, the recent developments in the Gulf will realistically push up fuel costs significantly in the coming weeks with an inevitable impact on official inflation rate too.
The Government has not specifically addressed some of the wider issues that significant groups of taxpayers are facing at the present time, such as the increasing pressure faced by new graduates, where increasing numbers of graduates are becoming liable to the ‘graduate tax’ even when they’re in minimum wage type jobs.
Similarly, she has made no mention about the impact of ‘high skilled individuals’ having increasingly looked to leave the UK over the past 5+ years. Whilst some of this movement has been incurring already – e.g. because of the increasing ease of working globally in the modern world – the reality is that some of Ms Reeves’s policy changes including the removal of the non-dom system of taxation, which can actually make it very beneficial for wealthier British nationals to leave the UK on a long-term basis to avoid IHT, have probably helped increase the numbers leaving the UK.
One has to question, with such uncertainty, what value can be placed on the forecasts?
Forecasted GDP increases are meagre before factoring in the current uncertainty in the Middle East. Inflation will increase, and GDP fall if the dispute in the Middle East continues.
Markets ignore Chancellor as Middle East dominates
The Chancellor was keen to stress the higher growth, lower inflation outlook for the UK in today’s Spring Statement. But markets are listening less to what is happening in the House of Commons and more on the war in the Middle East. Expectations that higher oil prices will flow through to re-inflation have sent yields higher, and cooled expectations for interest rate cuts. The market is now struggling to price in even a quarter point cut from the Bank of England’s Monetary Policy Committee.
We think this is overly pessimistic but understand the caution. As we shared in yesterday’s market report, there are echoes of the 1979 Iranian revolution, which not only caused a significant shift in geopolitics and re-configuration of cross-globe allies and partnerships, but also resulted in an oil crisis which saw the price of crude double over the course of a year, higher global inflation and slower economic growth. It will be this stagflation risk that equity and bond markets are most sensitive to, but the dynamics of the oil market have evolved significantly over the past 45 years.
Crucially, while oil prices may be higher now, consensus is that this disruption is transitory – and so too will the impact be on wider asset classes. In the event of an effective transition of power – and end to the fighting – oil prices are expected to return to $65 a barrel within weeks, and therefore the likelihood of a global growth shock is minimal.
Yes, a quieter Spring Statement is exactly what Britain’s businesses need.
They don’t need drama, they need clarity. Confidence is already fragile, and geopolitical tensions and global volatility continue to create instability, with this week only exacerbating this.
A quieter Spring Statement doesn’t signal a lack of ambition for the UK economy; it signals control. For banks, it supports sustainable product pricing. For businesses, it enables confident investment decisions. For households, it means fewer sudden shocks and more confidence when managing everyday finances, from savings decisions to longer-term planning.
Limiting major fiscal events to once a year reduces the risk of constant market repricing and helps support a steadier interest-rate environment.
In an uncertain world, steadiness is strength. Steadiness in fiscal policy is foundational to supporting savers, businesses, and the wider economy.
Today’s Spring Statement from Chancellor Rachel Reeves was largely anticipated to be deliberately uneventful, focusing on messaging around stability in public finances, economic reform and infrastructure investment. That notion, however, radically changed on the weekend. Airstrikes from the US and Israel on Iran ensured exogenous effects – increasing price pressures from constrained oil and LNG supply, for example – once again present significant headwinds to fiscal and monetary policymakers alike. The UK, like the Eurozone, remains largely beholden to live commodity market prices, suggesting inflation prospects have further upside potential, should the conflict be sustained.
Furthermore, domestic food inflation rose a more-than-expected 4.3% per this morning’s data release, up from 4% the month prior and compounding the prevailing concern of higher-for-longer rates. In fact, markets have priced out one 25-basis point move from the Bank of England by year-end already, with borrowing costs rising across the curve for the UK consumer.
In a world that has become “yet more uncertain”, Reeves’ uneventful speech will provide [very] short-term relief.
Nonetheless, ultimately the Labour Party remains under significant pressure following last week’s defeat in the Gorton and Denton by-election, an historical shoo-in for Labour. Coming out third best to both the Greens and Reform parties exacerbated Keir Starmer’s growing unpopularity, with backbenchers calling for a change in tack from the ruling party. Reuters/Ipsos polling released this morning shows the Green Party has usurped Labour as the second-most popular party in the country, with the incumbents at their lowest-ever level of 16%. Clearly, something drastic will have to change as we are now just two months out from the critical local elections in May.
Headline takeaways from the Chancellor’s statement are a near-term increase in unemployment, before moderating within this parliament, along with 1%-2% GDP growth, as well as an increase in fiscal headroom to £23.6billion from £21.7billion. No doubt, these metrics will remain overawed by the present geopolitical backdrop.
The pound remains on the back foot and is down nearly 1.60% against the dollar this week as investors pile into haven assets.
“UK Chancellor Spring Statement – financial services sector reaction” was originally created and published by Retail Banker International, a GlobalData owned brand.
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