Reeves to deliver ‘stability’ Spring Statement amid turmoil in Iran
Chancellor Rachel Reeves is set to deliver a Spring Statement trumpeting the UK’s economic stability against the backdrop of a war in the Middle East, with official forecasts expected to touch on lower growth, falling inflation and higher unemployment over the coming months.
In an address to the House of Commons around 12.30pm today, Reeves is set to make references to updated forecasts by the Office for Budget Responsibility (OBR) and acknowledge economic threats posed by the ongoing conflict in the Middle East.
The Chancellor is expected to defend the government’s economic plan, insisting that it is “right” when considering the world has become “yet more uncertain”.
She is expected to focus her message on the cost of living, falling inflation and lower interest rates, adding that the UK economy was “building growth not on the contribution of a few people or a few parts of the country, but in every part of Britain with a state that doesn’t stand back, but steps up”.
“Because of the decisions we have already taken, we have a stronger and more secure economy,” Reeves will tell MPs.
“Inflation and interest rates [are] falling. And in every part of Britain, working people are better off.”
Spring Statement for ‘stability’
Reeves has been intent on making the Statement less newsworthy, with both Autumn Budgets in her tenure and last year’s Spring event fuelling criticism of the government’s economic agenda.
But speculation is mounting that the government may shift its position on areas including the minimum wage, defence spending and student loans in the coming weeks.
Since last November’s Budget, Reeves has watered down plans for an increase in business rates paid by pubs while other policies including a limit to tax-free pension contributions through salary sacrifice have come under fire.
Some business chiefs have praised the government for its decision to not announce new tax and government expenditure policies at the Spring Statement. The Institute of Directors (IoD)’s chief economist Anna Leach said the “quietness” around the Spring Statement “provided some welcome stability”.
The OBR could also benefit from less scrutiny than it would otherwise have done were it taking a judgment on the impact of government policies for public finances, with the fiscal watchdog still searching for a new chair and facing calls for reform from MPs across the Commons as well as from leading economics think tanks such as the Institute for Fiscal Studies.
Grant Slade, an economist at Morningstar, said Reeves’ change to make the OBR score the government on fiscal policy just once a year was “commendable”.
The government appears to hope that a fiscal non-event could shore up business confidence. Recent surveys pointing to more positive data in manufacturing output, retail spending and cost pressures.
The IoD nevertheless suggested that sentiment among executives had fallen back in February to near-historic lows while the Confederation of British Industry (CBI) warned that private sector firms’ profits were set to decline over the next three months.
Reeves considers youth pay increase delay
However, City analysts believe that updated economic forecasts on data points including growth, inflation and the UK labour market will be enough for headroom figures to be calculated by inference.
Barclays’ chief UK economist Jack Meaning said the OBR was poised to revise down its optimistic growth forecast of 1.4 per cent for this year while the peak unemployment rate could be revised up to 5.2 per cent for 2026.
The government has faced intense pressure over rising youth unemployment, which has hit 16.1 per cent, the highest level in a decade.
The Resolution Foundation, the left-leaning think tank where Treasury ministers Torsten Bell and Dan Tomlinson used to work, said Reeves should address the rising number of young people not in education, employment or training (Neets) at the Spring Statement and make the policy area an “exception” to her rule.
Louise Murphy, senior economist at the Resolution Foundation, said: “Britain is perilously close to having a million young people not in education, employment or training for the first time in 13 years. The Chancellor should make a Neet exception to the ‘policy-free’ fiscal event by expanding eligibility to the jobs guarantee for young people, and making sure support arrives soon.”
One change in the government’s approach, which is reportedly set to take place over the coming weeks, involves a request for an independent body to delay the equalisation of the minimum wage for 18 to 21-year-olds with the national living wage.
From April, the minimum wage for young workers is set to rise by 8.5 per cent to £10.85 an hour, which follows a 16 per cent rise last year.
It comes as the Labour manifesto pledged to level off differences in pay between age bands, though employers have said higher wage costs have prevented them from taking on more workers.
Ministers are expected to write to the Low Pay Commission to suggest that the pledge to match the minimum wage with the living wage does not have to be met by 2030.
Reeves has previously highlighted the rise in the living wage as a policy helping Brits to tackle the cost of living, the top voter issue identified in Morning Wire/Freshwater Strategy polling.
Forecasts on inflation caveated by conflict with Iran
At the Spring Statement, Reeves may benefit from improved inflation forecasts for 2026, according to Barclays, which could allow the government to press home its point on cost pressures faced by households.
The revision could be undermined by a recent surge in oil and gas prices, which have come as a result of the conflict in the Middle East and are not expected to be covered in the OBR’s new forecasts. Should oil prices rise to as high as $100 per barrel from its Monday level of just under $79, some 0.7 percentage points could be added to global inflation, according to Capital Economics.
Barclays’ Meaning also said public sector borrowing could be revised down by £8bn for the current financial year after HMRC recorded a larger budget surplus than expected in January.
But mainly owing to new spending for special educational needs and disabilities (SEND) after a new government white paper released last week, Reeves’ headroom against her fiscal rule to balance day-to-day spending with tax receipts by 2030 could shrink from £22.7bn to around £20bn.
City analysts have suggested that bond traders will remain unconvinced by Reeves’ fiscal plans given calls from backbenchers to increase government spending and a commitment to increase defence spending to three per cent of GDP within the next 10 years.
“In the short term here, there’s a good window where gilt can perform. But over the long term, the political risks are still quite large, because the government is again struggling to really get a grip of the fiscal trajectory,” Neil Mehta, portfolio manager at RBC BlueBay Asset Management, said.
“There’ll be a point in the coming year, it could be one or two years out, but there will come a point where something will need to change.”