Today, the Chancellor delivered her Spring Statement to the House of Commons. We were anticipating an update on the OBR forecast with no new policy announcements, and that is what we got.

It was a more upbeat performance from the Chancellor than at previous fiscal events, potentially because she did not have to deliver much bad news. She highlighted recent successes, including falling inflation and interest rates, a lower energy price cap, increased defence spending, and the scrapping of the two-child benefit cap.

She was able to report that the OBR is forecasting economic growth will accelerate in 2027 and 2028, although it is expected to be slower this year, and that ‘headroom’ against her fiscal rules has increased to £23.6bn.

While the Labour benches were keen to celebrate more upbeat economic news, after several difficult weeks for the party, strong geopolitical headwinds provided a stark backdrop. The United States’ and Israel’s strike on Iran over the weekend is likely to have significant global economic consequences, not least for energy prices and, in turn, inflation, none of which could be factored into this forecast. Many, including the OBR itself, have questioned the reliability of the projections as a result.

Despite some positive news, the forecast also laid bare the impact of the Government’s tax decisions, with the tax burden set to rise to 38% of GDP – the highest level since the Second World War. It also projects that the Government will miss its housebuilding target of 1.5 million homes and anticipates relatively modest growth by historical standards, averaging 1.5% until 2030–31.

The assumptions underpinning these poor projections also fail to account for the turbulent domestic and global political landscape. Rebellions against government policy, pressure to increase defence spending, increasing unemployment, or a decline in productivity could all have serious implications and potentially knock the Government off course.

For the time being, the Government has some breathing space. However, the road ahead is anything but certain.

The key announcements are:

• Real GDP growth is forecast to slow to 1.1% in 2026 before averaging 1.6% from 2027. Potential output growth is projected at 1.3%, supported by a steady 1.0% annual productivity growth estimate and a closing output gap.
• Labour Market conditions are expected to loosen, with unemployment peaking at 5.33% in 2026. Consequently, nominal weekly wage growth is forecast to slow to 3.5% in 2026 and average 2.25% thereafter, reflecting lower inflation and higher employer costs.
• CPI inflation is projected to reach the 2.0% target in late 2026. Market expectations suggest the Bank Rate will fall to 3.3% by late 2026 before gradually rising to 4.0% by the end of the forecast horizon.
• Public sector net borrowing is forecast to fall from 5.2% of GDP in 2024-25 to 1.6% by 2030-31. Current year borrowing is £6 billion lower than previously forecast, though the medium-term outlook remains subject to significant uncertainty.
• Public sector net debt is projected to rise from 94.5% of GDP in 2025-26 to a peak of 96.5% in 2028-29. A subsequent decline to 95% is forecast by 2030-31 as fiscal conditions stabilise.
• The tax take is forecast to reach a historic high of 38.5% of GDP by 2030-31. Total public sector receipts are expected to rise to 42.7% of GDP (£1.6 trillion) by the end of the forecast period.