Going into the latest Spring Statement, the Chancellor made it very clear that this would not be a full fiscal event and that any new policy changes would be off the table.
Rising to her feet in Parliament that is exactly what Rachel Reeves delivered, but it was against a back drop of rising economic uncertainty that she could not have predicted when she set the date for her forecast.
In her opening words to the MPs gathered, she made it very clear that the ongoing conflict in the Middle East was adding considerable obstacles to improvements in the global economic outlook.
Already, oil and gas prices have surged and many of the world’s leading trading floors have recorded significant downturns, but nevertheless Reeves painted a picture of a UK economy that would continue to grow.
Some businesses and individuals may be thankful for little or no change, but others are likely reviewing the Statement and wondering why Reeves didn’t do more to lay the ground for help with a new, looming cost crisis.
Economic outlook
The Chancellor was keen to demonstrate that the Government’s existing plans would deliver “economic stability in an uncertain world.”
The Office for Budget Responsibility (OBR) report, delivered to The Treasury on 26 February, already painted a picture of slow growth prior to any knowledge of a growing global conflict.
The OBR’s report shows that the nation’s growth forecast has been reduced in 2026 to 1.1 per cent – down from the 1.4 per cent growth forecast in November’s Autumn Budget.
However, from 2027, growth is forecast to increase to 1.6 per cent (up from 1.5 per cent from last year’s forecast) and will grow at a similar rate in 2028, before slowing slightly to 1.5 per cent in 2029 and 2030.
Whilst the Government may be focused on this positive growth, the predictions are still far below GDP growth seen in the years ahead of the 2008 financial crisis – almost two decades ago.
Despite this weaker economic performance and the anticipated rising costs from global conflict, the OBR has forecast that inflation will actually drop to 2.3 per cent in 2026, down from the 2.5 per cent forecast in the Autumn Budget. It believes that the UK will still meet its target of 2 per cent inflation by 2027.
As many economic pundits have already pointed out, this forecast may have already been out of date at the time it was delivered due to the impact of global conflicts.
Combined, these events create a powder keg of economic uncertainty, which could restrict investment and decision-making within many businesses.
Unemployment rising
Unemployment is expected to rise at a far quicker rate this year – increasing from 4.75 per cent in 2025 to a peak of 5.3 per cent in 2026.
This is quite a significant rise, given that the last forecast in November had expected unemployment to only increase to 4.9 per cent this year.
The OBR has also raised its forecast for unemployment in 2027 to 4.9 per cent, from 4.6 per cent previously.
In its report, the fiscal watchdog said that “subdued hiring demand” meant that fewer jobs were available, with the Chancellor pointing out that more would be done to tackle unemployment, in particular, to help young workers into a career.
Long-term, the forecasts predict that the unemployment rate will fall gradually to 4.1 per cent by 2030/31.
The biggest barrier to this may remain the challenges businesses face when hiring. Experts, like the Bank of England, have suggested that the Government’s previous fiscal policies, including increases to the National Minimum Wage and the National Insurance hike, have caused employment costs to rise.
The impact of conflict
We can’t ignore the elephant in the room and neither did the Chancellor, but the current conflict in the Middle East is likely to have significant financial ramifications.
Rachel Reeves recognised that the actions of those involved, including the closure of one of the world’s most important waterways – The Straits of Hormuz – would have a knock-on effect on oil and gas prices.
The Chancellor promised no more austerity and confirmed that the public purse now had greater headroom to sustain spending, without having to borrow as much.
Whether this means fewer tax rises in future is not yet clear, but what is, is that the longer the current conflicts roll on, the greater the impact on global business.
This will have a trickle-down effect on many aspects of our lives, from energy costs to the price of transportation, all of which will add additional cost to the way we live.
The Government's plans
The fact that the Chancellor didn’t address the challenges ahead by creating any new fiscal policies, including support for SMEs, may be questioned by some.
She was trying to sell a picture of stability, by confirming that in future the single fiscal event – promised in the Labour manifesto – would mean longer periods without disruptive change.
However, given the events of recent days, some may query why the Chancellor didn’t use this opportunity to provide greater reassurance or outline proposals that might help businesses weather the economic storm ahead.
In two weeks’ time, Rachel Reeves will speak again as she delivers her next Mais Lecture. During her statement she confirmed that this speech would “set out three major choices that will determine the course of our economy into the future.”
Preparing for an uncertain future
Whilst many businesses will welcome the lack of change within the Spring Statement for the stability it brings, the wider world of finance is less certain and will be dependent on a number of factors outside the control of the UK Government.
That is why it is more important than ever for businesses and individuals to have a clear picture of their financial health, especially ahead of the fairly significant tax changes within the next few tax years outlined in the previous Autumn Budget.
To read the Chancellor’s full speech, please click here, or to read the OBR’s economic and fiscal outlook here.
