Reeves seizes on OBR forecast to say UK economy is on the right path

The National Institute of Economic and Social Research said the Middle East crisis could affect the UK’s fiscal outlook.

David Aikman, NIESR director, said: “The improved borrowing position announced in today’s Spring Statement has been overshadowed by the Middle East crisis.

“The market has repriced sharply since yesterday: 2-year gilt yields have risen from 3.5 % to 3.9 %, while Brent crude now stands at $80 a barrel, some 18 % above the OBR’s forecast assumption.

“This reflects a significantly reduced likelihood of a Bank of England Spring rate cut.

“If the crisis persists, higher energy prices will feed through to inflation, increasing borrowing costs further, putting serious pressure on the fiscal outlook.”

If oil and gas prices remain at current spot levels, UK consumer prices could rise by up to 1 %, a risk not reflected in the OBR’s latest forecasts.

The fiscal watchdog’s projections, published on Tuesday, were finalised before the US and Israeli attacks on Iran at the weekend.

However, David Miles, a senior OBR official, told reporters that despite the effects of the conflict not being accounted for in the most recent forecasts, the situation was “a long way short of where we were after the Russian invasion [of Ukraine].”

The chancellor missed an opportunity to address rising unemployment, according to the chief executive of the Resolution Foundation.

“The chancellor may have succeeded in delivering a statement free from news today, but with growth weak, unemployment rising, and the risk of further energy price shocks, the UK’s economic woes demand bolder and swifter action,” Ruth Curtice said.

Amid the prospect of higher unemployment, “the chancellor missed the opportunity to tackle this head on by expanding the Jobs Guarantee,” she added.

The OBR forecast an unemployment rate of 5.3 % this year, while close to one million young people are not in education, employment or training.

Helen Miller, director of the Institute for Fiscal Studies, said the news is not the change in forecasts since November but the forecasts themselves.

The Office for Budget Responsibility has increased its estimates for capital gains tax (CGT) compared with the autumn budget 2025.

Between 2025-26 and 2030-31, CGT is now expected to raise £19.9 bn more than previously forecast. Receipts are projected to reach £34.9 bn in 2030-31 – a £5.1 bn increase on the autumn budget estimate.

Simon Martin, head of UK technical services at Utmost, said: “Following record-breaking capital gains tax receipts in January 2026, the OBR has now substantially uprated its projections for the rest of the decade by around £20 bn over the next six years. It demonstrates that, far from being a one-off consequence of asset disposals, the increased rates and other policy changes announced at the autumn budget 2024 are creating a significant, longer-term trend of accelerating CGT collections.

“The OBR also references rising equity prices as a key driver of expanding CGT receipts with returns around 8 % higher than forecast at the autumn Budget, further contributing to the increased tax take.

“CGT is no longer a marginal consideration in long-term wealth planning, and a tighter fiscal regime further increases the premium on forward planning. Entrepreneurs contemplating business sales, families managing intergenerational wealth transfers and globally mobile individuals with multi-jurisdictional assets will all need to reassess the timing and structure of disposals.”

The government is on track to miss its target to build 1.5 million homes by the end of the current Parliament, the economic forecaster has said.

The Office for Budget Responsibility predicted net additions to Britain’s housing stock would fall from the recent average of 260,000 to a low of 220,000 in 2026-27.

New homes are then expected to rise sharply as a result of planning reforms introduced by Angela Rayner, the former housing secretary, and Steve Reed, her successor, with more than 305,000 a year.

The OBR said: “Compared to November, stronger out-turn and near-term indicators boost the forecast slightly in the short term, but it is broadly unchanged in the medium term. This leaves cumulative UK net additions between 2025-26 and 2029-30 at 1.3 million, around 30,000 higher than in November.”

David Miles, from the OBR’s budget responsibility committee, said its predictions that inflation will fall to target levels early this year have become “more uncertain” after jumps in oil and gas prices linked to recent attacks in the Middle East.

He said: “I think what will happen to inflation is particularly uncertain in the past few days.

“As I mentioned earlier and we all know, there have been very large increases in gas prices and oil prices.

“Our central expectation had been that inflation would fall back towards the Bank of England’s 2% target early this year and will be around that level at the end of the year.

“There must be more uncertainty around that right now.”

In its forecast, the OBR explained: “Conflict in the Middle East, which escalated as we were finalising this document, could have very significant impacts on the global and UK economies”

David Rees, head of Global Economics at Schroders, said:

Grant Slade, economist at Morningstar, has provided insight on the outcome and its implications

Borrowing is set to reduce by “nearly £18bn compared to the autumn”, with public sector net borrowing expected to fall from 4.3% this year to 3.6% next year, before hitting 1.8% in 2029-30, Rachel Reeves said.

The chancellor told the Commons: “In their forecasts today, the Office for Budget Responsibility show that we are set to reduce borrowing by nearly £18bn compared to the autumn.

“This year we are set to borrow less than the G7 average, something the Tories never achieved in fourteen years. The forecast today shows that public sector net borrowing is set to fall from 4.3% this year, to 3.6% next year, then 2.9%, 2.5%, and 1.8% in 2029-30.”

The Office for Budget Responsibility has also lowered its inflation forecast for this year, although the projection was drawn up before the war in Iran and may already be out of date.

The OBR now predicts CPI inflation will fall to 2.3 % in 2026, down from 2.5 % in its November forecast. The fiscal watchdog continues to expect inflation to run at 2 % per year from 2027, unchanged from previous projections.

Lale Akoner, global market analyst, said:

Neil Wilson, UK investment strategist at Saxo Bank, said:

Susannah Streeter, chief investment strategist at Wealth Club, said:

The Office for Budget Responsibility has raised its unemployment forecast significantly.

The OBR’s new central forecast is that the unemployment rate rises from 4.75% in 2025 to a peak of 5.3% in 2026.

Back in November, unemployment was expected to hit 4.9%, making this a big downgrade. The OBR has also raised its forecast for 2027 to 4.9%, up from 4.6% previously.

The OBR said: “Labour market weakness still appears to be driven primarily by entrants into the labour force struggling to find work amid subdued hiring demand. We expect this weak demand to continue in the near term as output falls further below the economy’s supply potential.”

Looking further ahead, the OBR expects the unemployment rate to fall gradually to 4.1 % by 2030.

The Office for Budget Responsibility (OBR) has published its new spring forecasts. It says:

“Government debt as a share of GDP has nearly tripled over two decades, borrowing has remained around 5% of GDP for the past four years, and borrowing costs are among the highest of advanced economies.

“Against this challenging backdrop this interim forecast update is little changed from November. GDP growth averages 1½ per cent from next year and borrowing falls to around 1½ per cent of GDP in 2030-31, which would stabilise debt around 95% of GDP.

“Significant risks, including from conflict in the Middle East, mean outcomes both substantially above and below this forecast are possible.”

This last line acknowledges that the world has changed since the forecasts were drawn up.

Rachel Reeves closed her spring statement speech by insisting her plan was “the right one” in a defiant conclusion to her Spring Statement speech.

The chancellor said: “My plan is the right one. I am in no doubt about how great the rewards can be if we stay the course. The forecasts today confirm that the choices this government has made are the right ones.

“Stability in our public finances, interest rates and inflation falling, living standards rising, more children lifted out of poverty, more appointments in our NHS, more investment in our infrastructure, a growing economy, and more money in the pockets of working people.

“Mr Speaker, these are the right choices, this is the right plan, and I commend this statement to the House.”

The Office for Budget Responsibility has “adjusted the profile of GDP so that it grows slightly slower in 2026 and faster in 2027 and 2028”, growing by 1.1% in 2026, 1.6% in 2027 and 2028, and 1.5% in 2029 and 2030, Rachel Reeves has said.

The chancellor told the Commons: “Last year, we demonstrated the resilience of Britain’s economy in the face of global headwinds, with the fastest growth of any G7 country in Europe.

“Today, the Office for Budget Responsibility has updated its growth forecasts, including reflecting lower net migration – average growth across the forecast period is largely unchanged, while the OBR has adjusted the profile of GDP so that it grows slightly slower in 2026, and faster in 2027 and 2028.

“GDP is forecast to grow by 1.1% in 2026, 1.6% in both 2027 and 2028, and 1.5% in both 2029 and 2030. And GDP per capita is set to grow more than was expected in the autumn, with growth of 5.6% over the parliament, after falling under the Tories in the last parliament.

“And by the next election, after accounting for inflation, people are forecast to be over £1,000 a year better off.”

Here are the new forecasts:

Rachel Reeves cited forecasts by the economic watchdog that predict inflation will fall despite the threat to global oil and gas supplies from the war in Iran.

The chancellor told MPs that economic stability was “the single most important precondition” for growing the economy.

She said: “That is why we have committed to a single major fiscal event each year, limiting major policy changes to the Budget and giving businesses and households the certainty they need. Today, the new forecasts from the Office for Budget Responsibility confirm that our plan is the right one.”

Reeves added: “In February, the Bank of England confirmed that inflation will fall faster because of the action that I took at the budget. And today, the Office for Budget Responsibility expect inflation to come down even faster than it forecast in the autumn.”

The price of wholesale gas in Europe rocketed by as much as 48% on Tuesday because of the war in the Middle East, a day after rising by 40%.

The chancellor said she had a “responsibility” to change Britain as she criticised the Tories’ record in office and claimed Labour had “restored economic stability”.

Rachel Reeves told MPs: “The previous government let inflation skyrocket to over 11%, 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.”

Inflation rose to more than 11% following Russia’s illegal full-scale invasion of Ukraine. By the time of the last general election in July 2024, the Tories under Rishi Sunak had failed to bring inflation back to 2%.

Reeves acknowledged that Labour had campaigned on a promise of “change” at the last election. She added: “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.”