Rachel Reeves confirmed in the House of Commons that the forecast for Britain’s economic growth in 2026 has been downgraded due to weakening short-term momentum.
The Office for Budget Responsibility now expects UK gross domestic product (GDP) growth to be 1.1%, down from an earlier estimate of approximately 1.4%.
In the medium term, however, the outlook appears slightly stronger.
The fiscal watchdog has upgraded its growth expectations for subsequent years, projecting 1.6% GDP growth for 2027 and 2028. Officials stated that improved inflation control and easing monetary pressures could support gradual economic expansion.
Projections for public sector borrowing have also been revised, with borrowing expected to decrease by around £18 billion compared to previous autumn estimates. Public sector net borrowing is forecasted to decline to 4.3% of GDP this year, 3.6% next year, and 1.8% by the fiscal year 2029–30. Treasury officials noted that stabilising debt remains a long-term objective.
Analysts have cautioned that these forecasts may already be outdated due to the escalation of the United States–Iran conflict in the Middle East. Key concerns include rising global energy prices, disruptions to shipping routes like the Strait of Hormuz, and potential inflationary pressures on UK households.
The Chancellor emphasised that the government’s priority is to maintain downward pressure on inflation while promoting real wage growth. However, market analysts argue that further shocks from geopolitical instability could alter fiscal and growth projections.
The Chancellor told MPs in the Commons: “Today, the new forecasts from the OBR confirm that our plan is the right one: inflation is down, borrowing is down, living standards are up, and the economy is growing.
“This Government has restored economic stability. The previous Government let inflation skyrocket to over 11 per cent, stoked interest rates to 15-year highs, and delivered the first Parliament on record where people were poorer at the end than they were at the start.
“I recognise the impact that had on families. We promised change at the election, and I understand the responsibility on me to deliver that change. I know that the question people will ask themselves at the next general election is this: are me and my family better off? I am determined that the answer will be yes.”
David Williams, head of group risk at Everywhen said: “Today’s Spring Budget delivered no new announcements directly affecting employee benefits, a move that was widely expected and consistent with the government’s intention to avoid major policy changes in the Spring update. While we hoped for minor tweaks to help support employers and employees, the absence of change also brings a welcome period of stability for organisations who are still planning their benefits strategies around bigger changes announced over the last 18 months.
“Encouragingly, the broader economic backdrop continues to improve with lower inflation and interest rates. With this improved environment, many employers may feel better placed to invest in their people now or as part of future budgeting later this year – strengthening reward, wellbeing, and benefits packages. So, while no news is good news right now, it is important for the government to combine an improving outlook with momentum generated by activity such as the Keep Britain Working report and start to build future policy decisions around recommendations that can improve the productivity of the UK through healthy workforces.”
