The government’s Spring Statement was overshadowed by unfolding events in the Middle East as the Office for Budget Responsibility warned that escalating conflict in the region “could have very significant impacts on the global and UK economies.”
- 2026 growth forecast cut
- Tax take set to reach record 38% of GDP by 2030-31
- Unemployment expected to peak at 5.3% this year
“The main fiscal story remains the same. The UK’s public finances are vulnerable.” (IFS)
Crisis in Middle East: the government’s Spring Statement was overshadowed by unfolding events in the Middle East as the Office for Budget Responsibility (OBR) warned that escalating conflict in the region “could have very significant impacts on the global and UK economies.”
Tax take to reach post-war high: the OBR downgraded its 2026 economic growth forecast from 1.4% to 1.1%, but upgraded its average growth predictions between 2027 and 2030 from 1.5% to 1.6%. Taxes are set to increase to a post-war high of 38% of GDP by 2030-31, with personal taxes accounting for almost half that rise. The OBR warned that this could “distort or constrain economic activity by more than expected.” Inflation is forecast to ease more quickly than previously predicted, falling to 2.3% this year; however, if inflationary pressures reignite, the likelihood of further monetary easing could recede. Unemployment is expected to peak at 5.3% this year.
Fiscal headroom: the UK is set to reduce borrowing by almost £18 million compared with November’s forecast. The government’s “fiscal headroom” – its buffer against financial shocks – increased from £21.7 billion to £23.6 billion.
Looking ahead: Chancellor of the Exchequer Rachel Reeves intends to reveal “three major choices that will determine the course of our economy into the future” shortly – these include strengthening the UK’s global relationships, breaking down trade barriers, and harnessing the power of AI.
Reaction: the British Chambers of Commerce commented: “Today’s Spring Statement confirmed that the UK economy is heading in the right direction” but called for further acceleration. Meanwhile, the Institute for Fiscal Studies acknowledged the improved borrowing forecasts, but warned: “The main fiscal story remains the same. The UK’s public finances are vulnerable.”
