Chancellor Rachel Reeves focused on stability and predictability in Tuesday’s spring statement, with no changes to taxes or spending.
Unlike previous statements dominated by domestic policy, this year’s update was overshadowed by rising energy costs linked to the Middle East conflict, potentially reviving inflation risks and squeezing margins. UK gas prices briefly hit 151p a therm this week – levels not seen since 2023, during the immediate aftermath of Russia’s invasion of Ukraine.
Delivering her speech amid a backdrop of increasing geopolitical tensions, Reeves said: “This Government has the right economic plan for our country, a plan that is even more important in a world that in the last few days has become yet more uncertain.”
On fiscal discipline, the chancellor confirmed the government is on track to meet its borrowing target for 2029/30, with £23bn to spare – a bigger margin than forecast in November, thanks to lower borrowing costs, though still below long-term averages. Reeves also signalled major upcoming policy announcements in two weeks time, including strengthening global trade, breaking down barriers and harnessing AI.
What is in the OBR forecast?
The Office for Budget Responsibility (OBR) updated its forecasts, setting the tone for business planning over the next year. It estimates UK GDP is expected to grow 1.1% in 2026, rising to around 1.6% annually from 2027 onwards.
Inflation is forecast to fall from 3.4% in 2025 to 2.3% in 2026, before stabilising at 2% from 2027. That is, of course, dependent on international events and any impact on global energy prices. The OBR noted that these projections do not yet account for the impact of the Middle East conflict, which could significantly affect both UK and global markets.
Unemployment is projected to peak at 5.3% this year, gradually falling to 4.1% by 2030. The OBR noted that one of the key issues in the jobs market was “entrants into the labour force struggling to find work amid subdued hiring demand”.
Business reaction: stability isn’t enough
Neil Carberry, CEO of the Recruitment and Employment Confederation, welcomed the chancellor’s focus on growth and stability but warned that action is needed, not just announcements. “Growth must be the government’s first priority. Many UK businesses are still on the brakes, leaving our economy underpowered. Policies on youth unemployment, apprenticeships, and skills support must tackle hiring disincentives and high taxes – and they need to be delivered urgently.”
From April, increases to National Insurance, the Minimum Wage, and the National Living Wage will come into effect, adding further pressure on firms.
Anisha Chawla, private client tax manager at UK accounting firm Menzies LLP, stressed the need for clarity and direction. “A quieter spring statement may steady markets in the short term, but deferring difficult decisions won’t rebuild confidence. Businesses are seeking certainty – without a clear, consistent growth strategy, confidence remains fragile and investment stalls.”
Andrew Harding, chief executive of the Chartered Institute of Management Accountants’ (CIMA) echoed the call for targeted stimulus: “The spring forecast identified there is still a lot of work to be done to drive meaningful growth and address productivity. Whilst it is a positive message to talk about stability, we were hoping to see policy stimulation linked to skills, tax reform, and support for SMEs.”
Since taking office last year, the UK government’s economic record has been cautious rather than transformative. While the economy has avoided recession, many of the chancellor’s targets remain unmet.
Joe Nellis, an economic adviser at MHA, the accountancy and advisory firm, says the economy has stabilised and is showing some signs of life, but growth remains sluggish by historical standards. “The government has prioritised fiscal discipline and credibility, but business investment has yet to recover decisively and productivity gains are limited. Without stronger investment, skills development and productivity reform, economic growth risks remaining steady but uninspiring.”
The UK government’s record on unemployment has been disappointing, Nellis adds. The headline unemployment rate is now 1.1% points higher than when they came to office. Hiring has slowed, vacancies have fallen, and youth unemployment has increased, raising concerns about school-to-work transitions and long-term skills scarring. There is a danger that our future workforce is irrevocably damaged as young people experience prolonged spells out of work.”
The key test for the government is whether it can prevent short-term labour market softness, particularly among younger workers, from becoming a long-term drag on productivity and growth.
Chancellor Rachel Reeves focused on stability and predictability in Tuesday’s spring statement, with no changes to taxes or spending.
Unlike previous statements dominated by domestic policy, this year’s update was overshadowed by rising energy costs linked to the Middle East conflict, potentially reviving inflation risks and squeezing margins. UK gas prices briefly hit 151p a therm this week – levels not seen since 2023, during the immediate aftermath of Russia’s invasion of Ukraine.
Delivering her speech amid a backdrop of increasing geopolitical tensions, Reeves said: "This Government has the right economic plan for our country, a plan that is even more important in a world that in the last few days has become yet more uncertain."
