The Spring Forecast: Stability over stimulus

Economically, the low-key statement was short, at just under 30 minutes; making clear that Rachel Reeves still sees controlling inflation and the Government’s borrowing costs as her most important priority, and setting out the OBR’s expectations for these indicators.

The Government will take confidence from some of the budget watchdog’s expectations – although many forecasts, notably growth and unemployment, see improvements only later in the parliament, with more negative figures in 2026.

While the OBR’s growth outlook follows this profile, the Treasury will struggle to fund its commitments on defence. Current trajectories will also make it challenging to deviate from a Spending Review that has set extremely tight settlements for departments towards the end of the Parliament. Looking ahead, the combination of a weakened Prime Minister and Chancellor, with a need to raise taxes or cut spending, and an imminent election, would create a febrile atmosphere amongst MPs.

Net migration is another area which could store up problems for the Treasury. While Reeves was clear that the OBR’s analysis included the impact of lower net migration, if it continues to fall it will impact revenue projections and Reeves’ ability to meet her fiscal rules. Finally, youth unemployment continues to be a weakness, with figures from the ONS putting it at its highest for five years. Labour’s struggles with younger, more socially liberal voters, as emphasised in Gorton and Denton, may force them to move on both these issues.

Politically, the Chancellor’s approach was much more combative than at the Autumn Budget – taking the opportunity to define the politics underpinning her policies and attack the other parties. Decrying calls for change as “easy answers and reckless borrowing”, her message (as much for some of her own backbenchers) was that it was fiscal restraint that would put more money in the pockets of working people.

International instability was an opportunity to emphasise her focus on “security” and “stability”, in contrast to the other parties, and she accused the Conservatives of putting forward unfunded defence plans while in government, and Reform of being a “Tory tribute act” that would side with Russia and enact the same policies that caused “chaos” under the Conservatives. Explicitly attacking the Greens, she criticised their policy to leave NATO. She emphasised that Labour was the only party that could deliver “social justice, national security and fiscal responsibility.”

The success of this narrative may again be tested by the markets: if the inflationary effects of the war in Iran mean that interest rates do not fall, the Government’s room for manoeuvre will be squeezed, and the impacts on the cost of living will again lead to calls for government support.

The Chancellor will return to many of these issues in her Mais Lecture in March, promising a ‘growth speech’ that provides further detail on the Government’s growth strategy, and where she is expected to address youth unemployment, planning reform and the role of AI in boosting productivity, amongst other topics.

She will also define what she sees as the “three major choices” for the UK:

• Going further in strengthening relationships and removing barriers with European partners.
• Going further on backing innovation and harnessing the power of AI, to ensure working people benefit.
• Transforming economic geography and unlocking the potential of every part of Britain.