Rachel Reeves blamed “increased global uncertainty” as the budget watchdog slashed its forecast for economic growth.
The Office for Budget Responsibility halved its forecast for growth in gross domestic product in 2025 from 2% to just 1%, shown in the chart below.
The watchdog also estimated inflation will average 3.2% this year, before falling to 2.1% in 2026 and then hit the 2% target from 2027.
The OBR said higher energy and food prices and “more persistently high wage growth” will cause inflation to hit a peak of 3.7% in the middle of this year - as shown in the graph below.
Government borrowing has been revised upwards in every year of the OBR forecast, reaching £137.3 billion in 2024/25, up from £127.5 billion which was forecast in October.
Public spending as a share of GDP, which hit record highs during the Covid pandemic with millions of workers furloughed, will return to pre-pandemic levels by 2029/30.
However, productivity will not rise quite as much as the Government hoped.
The graph below shows that the Office for Budget Responsibility has downgraded its forecast for productivity from October 2024 - in a blow to the Treasury. Stagnant productivity is among the UK’s key long-term economic problems.
The watchdog’s assessment also indicated the Chancellor would have missed her goal of balancing the nation’s books in 2029/30 by £4.1 billion without action – which included the welfare cuts, trimming planned increases in Whitehall spending, and planning reforms which are expected to boost growth.
Delivering her spring statement, Ms Reeves told MPs the threat facing Europe had “transformed” since Vladimir Putin’s invasion of Ukraine and “at the same time, the global economy has become more uncertain, bringing insecurity at home as trading patterns become more unstable and borrowing costs rise for many major economies”.
She said the “increased global uncertainty” had impacted both the economy and the public finances.
Responding to the OBR’s growth forecast, Ms Reeves said: “I am not satisfied with these numbers.
“That is why we on this side of the house are serious about taking the action needed to grow our economy. Backing the builders, not the blockers.”
Institute for Fiscal Studies director Paul Johnson said: “We can surely now expect six or seven months of speculation about what taxes might or might not be increased in the autumn.
“There is a cost, both economic and political, to that uncertainty. The Government will suffer the political cost. We will suffer the economic cost.”
