Chancellor Rachel Reeves delivered her Spring Statement, setting out updated fiscal plans against what she described as a “more uncertain” global backdrop.
Forecasts from the Office for Budget Responsibility (OBR) were a key plank of the speech.
The OBR cut its growth forecast for 2025 to 1% from its 2% estimate in October but revised up future years, with growth is expected to hit 1.9% in 2026 and stay above 1.7% through to 2029.
Reeves said: “Our economy is forecast to be larger at the end of the forecast period than forecast in October.”
Reeves confirmed her previous guidance that there would be no new income tax rises, but instead said £1 billion more will be raised through new measures tackling tax avoidance and evasion to raise a total of £7.5 billion by 2029/30.
The latest from Reeves is that day-to-day spending will be reduced by £6.1 billion in 2029/30, including cuts to welfare spending to save £4.8 billion and lower increases in department budgets.
Total spending will grow by an average of 1.2% per year compared to 1.3% in her autumn Budget.
Changes announced in the speech mean that fiscal 'headroom' will still stand at £9.9 billion, with public spending is set to rise to 45% of GDP next year, before falling to 43.9% in 2029/30.
As recently pledged by Prime Minister Kier Starmer, defence spending will rise to 2.5% of GDP, giving the Ministry of Defence an additional £2.20 billion next year.
Reeves added that the OBR now forecasts that people on average will be £500 a year better off due to changes under the government.
The government also said it is considering reforms to ISAs, though no policy changes were announced.
Reaction
The reaction in financial markets was been muted, with UK 10-year gilt yields slightly lower and the FTSE roughly unchanged.
Sanjay Raja, chief UK economist at Deutsche Bank, says the statement was "very much as expected", as a worse near-term economic outlook led to "a meaningful amount of fiscal consolidation".
While Reeves was at pains to stress that geopolitics has shifted the near-term economic outlook for the worse, raising uncertainty and the prospect of a trade war, with inflation expected to be stickier than previously expected, "today's forecasts highlight some optimism" around the medium-term path for growth.
The statement centred around spending cuts, "but less than we expected", Raja says.
"From a market perspective, Chancellor Reeves returned the fiscal headroom back to where it was in her maiden Budget."
Market analyst Susannah Streeter at Hargreaves Lansdown summarised the statement as containing "no big surprises... and that’s exactly what the Chancellor intended. Stability is right at the cornerstone of the government’s agenda, and she appears to have done the trick of not unnerving investors further."
Paul Dales, chief UK economist at Capital Economics, said Reeves "just tinkered with fiscal policy", which "left the impression that bigger changes lie ahead".
He said the tightening in fiscal policy of £9.7 billion (0.3% of GDP) in 2029/30 relative to previous plans revealed today "is not big", but was enough to restore headroom to where it was forecast to be after last October’s Budget.
The result that fiscal headroom will still only be £10 billion, Dales said, "may leave the markets feeling a little uncomfortable", as it means "the Chancellor is just as vulnerable to adverse economic and financial market developments that could wipe out her headroom again and force her to tighten fiscal policy further in the full Budget later this year".