UK growth forecast for 2025 halved as Reeves announces changes to welfare and defence spending – spring statement live

The new growth forecasts

As feared, the Office for Budget Responsibility has halved its forecast for UK growth this year.

But growth over the following few years will be faster than expected by the OBR last autumn.

Here are the new forecasts, and the old ones.

2025: 1%, down from 2.0% forecast in October’s budget
2026: 1.9%, up from 1.8% forecast in October’s budget
2027: 1.8%, up from 1.5% forecast in October’s budget
2028: 1.7%, up from 1.5% forecast in October’s budget
2029: 1.8%, up from 1.6% forecast in October’s budget

This means the economy will be larger at the end of the forecast period than expected at the Budget, Reeves declares.

Key events

DWP says disability benefit cuts will affect 3.2m current or future claimant families, with average loses of £1,720

The Treasury has published a general impact assessment, covering decisions taken in the spring statement and the budget last year. As this chart shows, in total the government can says its measures are progressive.

Impact assessment of all measure in last year’s budget and today’s spring statement Photograph: HMT

But the DWP has also published a detailed analysis of the impact of the disability benefit cuts, and those findings present a very different picture.

Here is potentially the most damaging paragraph.

Overall, it is estimated that in 2029/30 there will be 3.2 million families – some current recipients and some future recipients – who will financially lose as a result of this package, with an average loss of £1,720 per year compared to inflation. There are also estimated to be 3.8 million families – some current recipients and some future recipients – who will financially gain from this package, with an average gain of £420 per year compared to inflation.

This is an astonishing figure, that goes beyond some of the figures quoted by thinktanks last week, but it an illustration of an old Treasury saying: “You want me to cut £1bn. Shall I take £100 each off 10 million people, or £1,000 each off 1 million people?” Reeves was looking for, not £1bn, but £5bn.

OBR: Full-scale trade war would hurt growth

The Office for Budget Responsibility has warned that a full-scale trade war between the US and other major training partners would hurt Britain’s growth rate, and drive up inflation.

Its new central forecast does not explicitly account for the impact of recently announced tariff increases by the US and other countries (fair enough, given the uncertainty about what Donald Trump will decide on tariffs).

Instead, the OBR has drawn up three scenarios for how global trade may evolve.

In the first scenario, the US increases tariffs levied on goods arriving from China, Canada and Mexico by 20 percentage points, and these countries retaliate equivalently.

In this scenario (which is already unfolding) GDP growth in these countries slows while prices rise. This leads to UK GDP being around 0.2% lower in 2026-27 than in the OBR’s central forecast – a fairly modest hit – “as demand for UK exports slows and uncertainty weighs on UK economic activity”.

The second scenario is based on the possibility that the US increases tariffs on goods arriving from all other countries, including the UK, by 20 percentage points.

That, predictably, has a worse impact on the UK economy – GDP in this scenario is 0.6 per cent lower than in the central forecast in 2026-27.

The third scenario assumes that all US trading partners, including the UK, retaliate against the US by imposing their own equivalent tariffs on US goods.

This third scenario is not a pleasant picture. UK inflation is 0.6 percentage points higher than forecast in 2025-26, as the price of imports of US goods increases. Growth is quickly hurt too – as inflation eats into real incomes, and global growth slows.

The OBR says:

Alternatives to US goods may be more expensive which could lower living standards further. The peak impact on GDP is around 1 per cent in 2026-27. As GDP growth weakens, there are limited secondround effects on inflation, which then falls to 1.8 per cent in 2027-28.

Photograph: OBR

Digging into the OBR’s latest forecast, we can see a worrying slowdown looming in living standards growth.

Real household disposable income (ie, how much money people have to spend after tax, essential spending, and inflation) is forecast to rise by 1.7% this year, which is a drop on the 3.9% growth recorded in 2024.

Growth then slows to 1.1% in 2026, and again to a measly 0.5% in 2027, and 0.7% in 2028, before a 1.2% pick-up in 2029.

Real household disposable income (RHDI) per person is forecast to grow at an average of around ½ per cent a year in the five years from 2025-26 to 2029-30.

But growth is projected to vary significantly around this average, first slowing sharply from 2½ per cent in 2024-25 to almost no growth in 2027-28, the OBR says.

A chart showing forecasts for real household disposible income Photograph: OBR

In her response to Stride, Reeves accused the Conservatives of not offering any alternatives. She said they can’t say what they would do as an alternative to the tax rises in the budget. And she said the Tories abstained on the bill containing the government’s planning reforms. “You don’t change the country by abstaining, by sitting on the fence,” she said.

Stride suggests the Treasury delayed publishing the impact assessment for the disability cuts until today because it thought today would be a “good time to bury bad news”.

The Conservatives had a clear plan for welfare change, he says. But Labour has just rushed out proposals, he says.

And he is now on his peroration.

She is the chancellor who said she would not increase borrowing, but she did.

She said she wouldn’t change her fiscal rules, but she did.

She said she wouldn’t put up national insurance, but she did.

She said she wouldn’t cut winter fuel payment, but she did.

She said she wouldn’t tax farmers, but she did.

And she said she would not move to more than one fiscal event a year, and she just has and now we are all paying the price of our broken promises.

Today’s numbers confirm we are poorer and we are weaker

To govern is to choose, and this chancellor has made all the wrong choices.

Mel Stride claims spring statement is ‘public humiliation’ for Reeves because fiscal targets were due to be missed

Mel Stride, the shadow chancellor, is responding to Reeves.

He says this is really an emergency budget.

When the Tories were in office, the UK was growing faster than any other G7 economy, he says.

Reeves is blaming others – the war in Ukraine, President Trump, tariffs, President Putin, and the Conseratives – for the fact that growth has stalled.

But it is her fault, he says. He says Reeves caused business confidence to crash with the tax increases in her budget.

And he claims she fiddled her target and she missed them.

Lindsay Hoyle, the Speaker, intervenes. He says he is not happy about Stride using the word fiddled.

But Stride does not withdraw the word, and just carries on. He says for Reeves to have been on course to miss her fiscal targets so quickly is a “public humiliation”.

OBR: The economic and fiscal outlook has become more challenging

The Office for Budget Responsibility has warned that Britain’s economic and fiscal outlook has become “more challenging since the Autumn Budget”, in its official verdict on the economy – and the spring statement.

The OBR explains that domestic output “stagnated” in the second half of last year, and that business and consumer confidence have “trended lower recently”.

The watchdog also confirms that Rachel Reeves was on track to miss her fiscal target of a budget surplus in 2029-30m, before taking extra steps to bring borrowing into line, restoring the £9.9bn surplus at the end of the decade.

The OBR explains:

Higher debt interest payments and weaker-than-expected receipts take the current balance from a surplus of £9.9 billion to a deficit of £4.1 billion in 2029-30, before accounting for new policies.

They also explain that more expensive energy and food will push inflation up this year:

Higher energy and food prices and more persistently high wage growth cause inflation to rebound to a quarterly peak of 3.7% in mid-2025, before returning to target over the rest of the forecast.

The Office for Budget Responsiblity has now published its 180-page economic and fiscal outlook report online.

Reeves says OBR now expects people to be £500 per year better off at end of decade than forecast under Tories

Reeves ends by saying the OBR is also saying that people will be richer by the end of the decade.

She says that, compared to what was being forecast at the time of the last budget delivered under the Tories, people will be on average £500 a year better off, taking into account inflation.

The new growth forecasts

As feared, the Office for Budget Responsibility has halved its forecast for UK growth this year.

But growth over the following few years will be faster than expected by the OBR last autumn.

Here are the new forecasts, and the old ones.

2025: 1%, down from 2.0% forecast in October’s budget
2026: 1.9%, up from 1.8% forecast in October’s budget
2027: 1.8%, up from 1.5% forecast in October’s budget
2028: 1.7%, up from 1.5% forecast in October’s budget
2029: 1.8%, up from 1.6% forecast in October’s budget

This means the economy will be larger at the end of the forecast period than expected at the Budget, Reeves declares.

Reeves says OBR has raised its growth forecasts for years after 2025

Reeves says, although the OBR has cut its growth forecasts for this year, it has increased its growth forecasts for future years.

She says it is now forecasting growth of 1.9% in 2026, of 1.8% in 2027, 1.7% in 2028 and 1.8% in 2029.

Reeves says planning reforms will put government ‘withing touching distance’ of hitting 1.5m new homes target

Reeves says the OBR is also calculating that the planning reforms will allow 1.3m over the next five years.

That alone puts the government “within touching distance” of its target of building 1.5m new homes over this parliament, she says.

Reeves says OBR calculates Labour’s planning reforms will boost GDP by 0.4% within 10 years

Reeves turns to the plans for planning reform, saying the OBR has now concluded that these reforms will permanently increase GDP by 0.2% by 2029/30, which is worth £6.8bn, and increase GDP by 0.4% within 10 years.

She says this os “the biggest positive growth impact that the OBR have ever reflected in their forecast”, she says. And it has come at no cost, she says.

Reeves returns to the plans to increase defence spending.

We will spend a minimum of 10% of the Ministry of Defence’s equipment budget on new novel technologies, including drones and AI enabled technology, driving forward advanced manufacturing production in places like Glasgow, in Derby and in Newport, creating demand for highly skilled engineers and scientists and delivering new business opportunities for UK tech firms and startups.

We will establish a protected budget of £400m within the Ministry of Defence, a budget that will rise over time for UK defence innovation with a clear mandate to bring innovative technology to the front line at speed.

And we will reform our broken defence procurement system, making it quicker, more agile and more streamlined.

UK inflation seen at 3.2% this year

The latest inflation forecasts show that the cost of living will be rising at a faster, more painful, pace than expected this year.

Reeves says the OBR now forecasts inflation will average 3.2% this year (reminder, it was 2.8% in February). Back at October’s budget, inflation was forecast to be 2.6% this year.

In 2026, inflation is forecast to drop to 2.1% – just above the Bank of England’s target, but below the 2.3% inflation rate forecast in the budget.

Reeves says inflation is then seen at around 2% from 2027 onwards, previously the OBR forecast 2.1% inflation in 2027 and 2028.