26th Mar 2025 14:02
(Alliance News) - The UK Office for Budget Responsibility halved its UK growth forecast for 2025 to 1.0%, as Chancellor Rachel Reeves set out savings of around GBP14 billion in her spring statement on Wednesday.
The OBR said the economic and fiscal outlook has become "more challenging" since the autumn budget, with stagnant domestic output in the second half of 2024 and lower business and consumer confidence.
The OBR is the independent public finances watchdog for the UK, which produces the official forecasts for the economy and public finances used by the chancellor.
Referring to the lower growth forecast, Reeves told the House of Commons: "I am not satisfied with these numbers."
The global economy has become "more uncertain" and this demands an active government, one that "steps up, not steps back," she said.
The OBR's updated forecasts showed a government deficit of GBP4.1 billion by fiscal 2029-30.
Reeves said actions taken Wednesday would restore the fiscal headroom in full, moving from a deficit of GBP36.1 billion in fiscal 2025-26 before moving into surplus of GBP9.9 billion in fiscal 2029-30.
Reeves said increased global uncertainty has hit public finances and the economy and added her fiscal rules are "unnegotiable".
Around one-third of the lower growth this year reflects structural weakness, particularly in productivity, the OBR said.
The remaining two-thirds are due to cyclical, temporary factors including higher interest rate expectations, increases in gas prices and elevated uncertainty.
The OBR expects gross domestic product growth to accelerate to 1.9% in 2026 as monetary policy eases, gas prices fall back and "slack in the economy is taken up".
It expects growth to average 1.75% over the rest of the decade.
"By the end of the forecast our economy is larger compared to the OBR's forecast at the time of the budget," Reeves said.
Inflation will average 3.2% in 2025, Reeves said, compared with the OBR's previous forecast of 2.6%. It will then average 2.1% in 2026, and return to the Bank of England’s 2% target in 2027.
Reeves said there would be no further tax hikes in the spring statement.
But she did confirm cuts to welfare spending, which the OBR estimates will save GBP4.8 billion.
The UK government will put an extra GBP6.4 billion into defence spending by 2027, Reeves said, confirming an additional GBP2.2 billion for the Ministry of Defence in the next financial year.
She pledged to "boost Britain's defence industry and to make the UK a defence industrial superpower", with a minimum of 10% of the MoD's kit budget to be spent on novel equipment, including drones and AI-enabled technology.
"This additional investment is not just about increasing our national security, but increasing our economic security, too," she said.
The chancellor also said the OBR had concluded the government's planning reforms would "help build over 1.3 million homes" in the next five years.
She said: "The planning system that we inherited was far too slow. The OBR have concluded that our reforms will lead to housebuilding reaching a 40-year high of 305,000 by the end of the forecast period.
"And changes to the national planning policy framework alone will help build over 1.3 million homes in the UK over the next five years taking us within touching distance of delivering on our manifesto promise to build 1.5 million homes in England this parliament."
She said the effect of the government's growth policies is estimated to result in an additional GBP3.4 billion "to support our public finances and our public services by 2029-30", which she dubbed the "proceeds of growth".
Reeves added: "Compared to the forecast in the final budget delivered by the party opposite, and after taking account of inflation, the OBR say today that people will be on average over GBP500 a year better off under this Labour government."
Ahead of the statement Prime Minister Keir Starmer said the government is "going further and faster on the economy".
The Labour administration is creating "jobs and opportunities" for people and "securing Britain’s future", he told the House of Commons during prime minister's questions.
By Michael Hennessey, Alliance News reporter
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