Chancellor Rachel Reeves will deliver her Spring Statement in the House of Commons on Wednesday.
In it she will respond to the Office for Budget Responsibility (OBR)’s latest revised forecasts for the economy and public finances, which will likely see the UK’s 2025 GDP growth forecast downgraded. Currently the OBR is forecast 1% GDP growth for the UK this year, which has already been halved from October 2024’s figure.
The OBR is “almost certain” to reduce its estimates for economic growth, said Richard Flax, chief investment officer at Moneyfarm. This is in part because of uncertainty around President Trump’s trade tariffs. “We’ve already seen the US Federal Reserve do something similar this week – cutting its published estimates for 2025 US GDP growth from 2.1% to 1.7%, while raising its estimates for inflation. That will create some challenges for the Chancellor,” he added.
While the economic growth outlook is meant to be the main focus of the speech, with major policy changes reserved for the Autumn Budget, the Chancellor may also make announcements in other areas.
See also: Rachel Reeves: “We’re not coming with more tax increases or borrowing”
At the weekend, she came out to state there would be no tax-raising measures announced in the Spring Statement. But Myron Jobson, senior personal finance analyst at interactive investor, suggested an underperforming economy and stockmarket swings stoked by Trump’s trade war could force the chancellor to make some “unpopular decisions” to avoid breaching her own fiscal rules.
“Specifically, high gilt yields, which represent the UK government’s cost of borrowing, are a key concern – potentially impacting borrowing costs and threatening the sustainability of the public finances,” he added.
Scale of the challenge
Government borrowing for the year to February came in at £10.7bn, much higher than the £6.5bn forecast, adding to the pressure on Reeves. Danni Hewson, head of financial analysis at AJ Bell, said the borrowing figures give some insight into the scale of the challenge facing Reeves.
“Interest payments on all the debt that’s been piled on in recent years is still gobbling up a big chunk of the cash coming into Treasury coffers and after last week’s Bank of England rate hold, yields on the benchmark 10-year government bond ticked up.
“With such geopolitical uncertainty, fiscal rules are important and breaking them would be costly. Not breaking them leaves the chancellor with few avenues to choose from, especially with her fiscal headroom almost certainly evaporated, and probably in deficit.
“Promises not to increases taxes will mean even fewer choices, more cuts to public spending and the increased likelihood that the unpopular fiscal drag of frozen tax thresholds will remain with us way beyond 2028.”
ISA reforms off the table
Interactive investor noted the chancellor had reportedly been considering a £4,000 annual cap on cash ISA contributions to encourage investment in stocks and shares ISAs and stimulate the UK stockmarket. However, recent reports suggest that these proposed reforms have been postponed and will not feature in the fiscal event.
Gifting rules in the spotlight
Jason Hollands, managing director at Evelyn Partners, was not surprised the chancellor came out to quash rumours of tax rises ahead of her speech, given the negative reception the Autumn Budget received. He said the onus for now will be on spending cuts that have been well-telegraphed.
“The Spring Statement will largely be about spending decisions, we will have our eyes peeled for any announcements of consultations or reviews that accompany it. Often billed as “simplification” proposals, one such area could be an overhaul of the lifetime gifting regime, as the government has been clear the taxation of inheritances is an area it is prepared to tighten up on.”
Welfare overhaul
The government has already signalled its intention to save £5bn of public money by reforming the welfare system and trying to get long-term sick and disabled people into work. This is part of the chancellor’s drive to cut day-to-day public spending and reduce public debt as a percentage of the overall economy.
“From an investment perspective, we think the prospect of weaker growth and potential cuts to spending have been well-flagged. The chancellor will try hard not to provide any major surprises,” said Flax.