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%.
The watchdog’s assessment also indicated the Chancellor would have missed her goal of balancing the nation’s books without action.
Responding to the 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.'
Despite the dramatic downgrade in 2025, she said the OBR had upgraded its forecasts for subsequent years with GDP expected to increase by 1.9% in 2026, 1.8% in 2027, 1.7% in 2027 and 1.8% in 2029.
The Office for Budget Responsibility halved its forecast for growth in gross domestic product in 2025 from 2% to just 1%.
The watchdog’s assessment also indicated the Chancellor would have missed her goal of balancing the nation’s books without action.
Responding to the 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.'
Despite the dramatic downgrade in 2025, she said the OBR had upgraded its forecasts for subsequent years with GDP expected to increase by 1.9% in 2026, 1.8% in 2027, 1.7% in 2027 and 1.8% in 2029.
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NewsTranscript
00:00Right, we now come to the Spring Statement. Chancellor of the Exchequer, Rachel Reeves.
00:12Mr Speaker, this Labour government was elected to bring change to our country, to provide
00:19security for working people and to deliver a decade of national renewal. That work began
00:28in July and I am proud of what we have delivered in just nine months. Restoring stability to
00:35our public finances. Giving the Bank of England the foundation to cut interest rates three
00:42times since the general election. Rebuilding our public services with record investment
00:49in our NHS, bringing waiting lists down for five months in a row. And increasing the national
00:57living wage to give three million people a pay rise from next week.
01:04Now our task is to secure Britain's future in a world that is changing before our eyes.
01:11The threat facing our continent was transformed when Putin invaded Ukraine. It has since escalated
01:18further and will continue to evolve rapidly. At the same time, the global economy has become
01:26more uncertain, bringing insecurity at home as trading patterns become more unstable and
01:33borrowing costs rise for many major economies. Mr Speaker, the job of a responsible government
01:40is not simply to watch this change. This moment demands an active government. A government
01:46not stepping back, but stepping up. A government on the side of working people, helping Britain
01:54to reach its potential. Mr Speaker, we have the strength to do just that. As one of the
02:01world's largest economies, an ally to trading partners across the globe and a hub for global
02:08innovation. These strengths and the progress that we have made so far mean that we can
02:15act quickly and decisively in a more uncertain world to secure Britain's future and to deliver
02:21prosperity for working people. Mr Speaker, as I set out at the Budget last year, I am
02:31today returning to the House to provide an update on our public finances, supported by
02:37a new forecast from the Independent Office for Budget Responsibility. Ahead of a full
02:42spending review in June, I will then return to the House in the autumn to deliver a Budget
02:48in line with our commitment to deliver just one major fiscal event a year. So let me now
02:55turn to the OBR's forecasts, and I want to thank Richard Hughes and his team for their
03:00dedicated work. The increased global uncertainty has had two consequences, first on our public
03:08finances and second on our economy. I will take each in turn. In the autumn, I set out
03:16our new fiscal rules that would guide this Government. These fiscal rules are non-negotiable.
03:22They are the embodiment of this Government's unwavering commitment to bring stability to
03:27our economy and to ensure security for working people, because the British people have seen
03:34what happens when a Government borrow beyond their means. The mini-Budget delivered by
03:45the party opposites resulted in higher bills, in higher rents and higher mortgages. It was
03:54not the wealthy who suffered most when they crushed the economy, it was ordinary working
03:59people. They continue to feel the effects, two and a half years later, of the damage
04:07that the party opposite did. Let me be clear. There is nothing progressive, there is nothing
04:15Labour, about working people paying the price for economic irresponsibility. The British
04:22people put their trust in this Labour Government, because they knew that we—they knew that
04:29I would never take risks with the public finances, that we would never do anything to put household
04:36finances in danger, and we must earn that trust every single day.
04:43The two rules that I set out at the Budget were, first, our stability rule, which ensures
04:49that public spending is under control, balancing the current Budget by 2029-30, so that day-to-day
04:57spending is met by tax receipts. Second, our investment rule, to drive growth in the economy,
05:05ensuring that net financial debt falls by the end of the forecast period, while enabling
05:10us to invest alongside business.
05:14Turning first to the stability rule, the OBR's forecast shows that, before the steps that
05:20I will take in this statement, the current Budget would have been in deficit by £4.1
05:25billion in 2029-30, having been in surplus by £9.9 billion in the autumn, as the UK,
05:34alongside our international peers such as France and Germany, has seen the cost of borrowing
05:39rise during this period of heightened uncertainty in global markets. As a result of the steps
05:46that I am taking today, I can confirm that I have restored in full our headroom against
05:52the stability rule, moving from a deficit of £36.1 billion in 2025-26 and £13.4 billion
06:03in 2026-27 to a surplus of £6.0 billion in 2027-28, £7.1 billion in 2028-29 and a surplus
06:15of £9.9 billion in 2029-30. That compares to the headroom left by the previous Government
06:23of just £6.5 billion. That means that we are continuing to meet the stability rule
06:31two years early, building resilience to shocks in this and more uncertain world.
06:38The OBR forecasts that the investment rule is also met two years early, with net financial
06:45debt of 82.9% of GDP in 2025-26 and 83.5% in 2026-27, before falling to 83.4% in 2027-28,
06:58then to 83.2% in 2028-29 and then to 82.7% in 2029-30, providing headroom of £15.1 billion
07:11in the final year of the forecast, broadly unchanged from the autumn. After the last
07:16Government doubled the national debt, debt interest payments now stand at £105.2 billion
07:31this year. That is more than we allocate to defence, the Home Office and the Ministry
07:38of Justice combined. That is the legacy of the party opposites. So the responsible choice
07:47is to reduce our levels of debt and borrowing in the years ahead, so that we can spend more
07:52on the priorities of working people, and that is exactly what this Government will do.
08:00I said that our fiscal rules were non-negotiable, and I meant it. I will always deliver economic
08:06stability and I will always put working people first. I said it at the election, I said it
08:12at the Budget, and I say it again today. Let me now set out the steps that the Government
08:21have taken. At the Budget, we protected working people by keeping our promise not to raise
08:27their rates of national insurance, income tax or VAT. At the same time, we began to
08:35rebuild our public services after the party opposites left a £22 billion black hole in
08:42our public finances. Ours were the right choices—the right choices for stability and the right
08:50choices for renewal—funded by the decisions that we took on tax. As I promised in the
08:57autumn, this statement does not contain any further tax increases, but when working people
09:04are paying their taxes while still struggling with the cost of living, it cannot be right
09:09that others are still evading what they rightly owe in tax.
09:15In the Budget, I delivered the most ambitious package of measures that we have ever seen
09:20to cut down on tax evasion, raising £6.5 billion per year by the end of the forecast.
09:27Today I go further, continuing our investment in cutting-edge technology, investing in the
09:33HMRC's capacity to crack down on tax avoidance, and setting out plans to increase the number
09:38of tax fraudsters charged every year by 20%. These changes raise a further £1 billion,
09:45taking the total revenue raised from reducing tax evasion under this Labour Government to
09:50£7.5 billion. These figures are verified by the Office for Budget Responsibility, and
09:58I want to thank my hon. Friend the Exchequer Secretary for his continued work in this area.
10:07Last week, my right hon. Friend the Secretary of State for Work and Pensions set out this
10:11Government's plans to reform the welfare system. The Labour party is the party of work.
10:17We believe that if you can work, you should work, but if you cannot work, you should be
10:24properly supported. This Government inherited a broken system. More than 1,000 people every
10:31day are qualifying for personal independence payments. One in eight young people are not
10:36in employment, education or training. If we do nothing, we are writing off an entire generation.
10:45That cannot be right, and we will not stand for it. It is a waste of their potential,
10:50and it is a waste of their futures, and we will change it.
10:56As my right hon. Friend said in her statement last week, the final costings would be subject
11:00to the OBR's assessment. Today, the OBR has said that it estimates that the package
11:06will save £4.8 billion in the welfare budget, reflecting its judgments on behavioural effects
11:13and wider factors. This also reflects final adjustments to the overall package, consistent
11:19with the Secretary of State's statement last week and the Government's Pathways
11:22to Work Green Paper. The universal credit standard allowance will increase from £92
11:28per week in 2025-26 to £106 a week by 2029-30, while the universal credit health element
11:36will be cut for new claimants by around 50% and then frozen. On top of this, we are investing
11:43£1 billion to provide guaranteed personalised employment support to help people back into
11:50work, and £400 million to support the Department for Work and Pensions and our jobcentres to
11:57deliver these changes effectively and fairly, taking total savings after that to the package
12:03to £3.4 billion.
12:06While spending on disability and sickness benefits will continue to rise, these plans
12:10mean that welfare spending as a share of GDP will fall between 2026 and the end of
12:16the forecast period—very different from what we inherited from the party opposite.
12:23We are reforming our welfare system, making it more sustainable, protecting the most vulnerable
12:29and, most importantly, supporting more people back into secure work, lifting them out of
12:34poverty.
12:39At the Budget, I fixed the foundations of our economy to deliver on the promise of change.
12:44That work has already begun—2 million extra appointments in our NHS, waiting lists down,
12:53new breakfast clubs opening across England, the largest settlements in real terms for
12:58Scotland, Wales and Northern Ireland in the history of devolution, asylum costs falling,
13:05promises made, promises kept, and every single one of them opposed by the parties opposite.
13:13At the Budget, alongside providing an increase in funding for this year and next, I set the
13:18envelope for the spending review, which we will deliver in June, led by my right hon.
13:23Friend the Chief Secretary to the Treasury, to set departmental budgets until 28-29 for
13:29day-to-day spending and until 20-29-30 for capital spending.
13:34Today, I am reflecting two steps that we have taken on our spending plans. First, because
13:40we are living in an uncertain world, as the Prime Minister has set out, we will increase
13:45defence spending to 2.5% of GDP, reducing overseas aid to 0.3% of gross national income.
13:53This means we save £2.6 billion in day-to-day spending in 20-29-30 to fund our more capital-intensive
14:01defence commitments. Second, in recent months we have begun to fundamentally reform the
14:07British state, driving efficiency and productivity across Government to deliver tangible savings
14:14and improve services across our country. Earlier this Prime Minister set out plans to abolish
14:20the arm's-length body NHS England and ensure that that money goes directly to improving
14:26the service for patients.
14:29My right hon. Friend the Health Secretary is driving forward vital reforms to increase
14:34NHS productivity, bearing down on costly agency spend to save money so that we can improve
14:40patient care. My right hon. Friend the Chancellor of the Duchy of Lancaster is taking forward
14:46work to significantly reduce the costs of running Government by 15%, worth £2 billion
14:52by the end of the decade. This work shows that we can make our state leaner and more
14:58agile, delivering more resources to the front line while ensuring that we control day-to-day
15:03spending to meet our fiscal rules. Today I build on that work by bringing forward £3.25
15:10billion of investment to deliver the reforms that our public services need through a new
15:15transformation fund. That is money brought forward now to bring down the costs of running
15:21Government by the end of the forecast period. By making public services more efficient,
15:27more productive and more focused on the user. I can confirm today the first allocations
15:33from this fund, including funding for voluntary exit schemes to reduce the size of the civil
15:39service, pioneering AI tools to modernise the state, investment in technology for the
15:46Ministry of Justice to deliver probation services more effectively, and up-front investment
15:53so that we can support more children into foster care to give them the best possible
15:57start in life and reduce cost pressures in the future. Our work to make Government leaner,
16:05more productive and more efficient will help deliver a further £3.5 billion of day-to-day
16:11savings by 2029-30. Overall, day-to-day spending will be reduced by £6.1 billion in 2029-30,
16:21and it will now grow by an average of 1.2% a year above inflation, compared with 1.3%
16:28in the autumn. I can confirm to the House that day-to-day spending will increase in
16:35real terms above inflation in every single year of the forecast. In the spending review,
16:44apart from the reductions in overseas aid, day-to-day spending across Government has
16:49been fully protected. I can also confirm our approach to capital investment. In the
16:56autumn Budget, I announced £100 billion of additional capital spending to crowd in investment
17:02from the private sector, to fix our crumbling infrastructure and to create jobs in every
17:07corner of our country. Today, I am not cutting capital spending, as the party opposite did
17:13time and time again, because that choked off growth and it left our school roofs literally
17:20crumbling. That was the wrong choice. It was the irresponsible choice. It was the Tory
17:27choice. Today, I am instead increasing capital spending by an average of £2 billion per
17:35year compared with the autumn to drive growth in our economy and to deliver in full our
17:41vital commitments on defence. This Government will ensure that every pound we spend will
17:49deliver for the British people by increasing productivity, driving growth in our economy
17:54and improving our front-line public services.
18:02Let me turn now to the impact of increased uncertainty on our economy. To deliver economic
18:08stability, we must work closely with the Bank of England, supporting the Independent
18:13Monetary Policy Committee to meet its 2% inflation target. There have been three interest rate
18:19cuts since the general election, and today's data showed that inflation fell in February.
18:26Having peaked at 11% under the previous Government, the OBR forecast that CPI inflation will average
18:353.2% this year before falling rapidly to 2.1% in 2026 and meeting the 2% target from 2027 onwards,
18:48giving families and businesses the security that they need and providing our economy
18:53with the stable platform it needs to grow. Earlier this month, the OECD downgraded this
19:00year's growth forecast for every G7 economy, including the UK, and the OBR has today revised
19:07down our growth forecast for 2025 from 2% in the autumn to 1% today. I am not satisfied
19:16with these numbers, and that is why we on this side of the House are serious about taking
19:21the action needed to grow our economy—backing the builders, not the blockers, with a third
19:26runway at Heathrow airport and the Planning and Infrastructure Bill, increasing investment
19:32with reforms to our pension system and a new national wealth fund, and tearing down regulatory
19:38barriers in every sector of our economy. That is a serious plan for growth. That is a serious
19:44plan to improve living standards. That is a serious plan to renew our country.
19:52A changing world presents challenges, but it also presents new opportunities for new
19:58jobs and new contracts in our world-class defence industrial centres, from Belfast to
20:05Deeside and from Plymouth to Rosyth. In February, the Prime Minister set out our Government's
20:12commitment to increase spending on defence to 2.5% of GDP from April 2027—the biggest
20:19sustained increase in defence spending since the end of the cold war—with an ambition
20:25to spend 3% of GDP on defence in the next Parliament. That was the right decision in
20:30a more insecure world, putting an extra £6.4 billion into defence spending by 2027. But
20:39we have to move quickly in this changing world, and that starts with investment. Today I can
20:45confirm that I will provide an additional £2.2 billion for the Ministry of Defence
20:51in the next financial year—a further down payment on our plans to deliver 2.5% of GDP
20:58by 2027. This additional investment is not just about increasing our national security,
21:06but increasing our economic security too. As defence spending rises, I want the whole
21:12country to feel its benefits, so I will now set out the immediate steps that we are taking
21:16to boost Britain's defence industry and to make the UK a defence industrial superpower.
21:25We will spend a minimum of 10% of the Ministry of Defence's equipment budget on new novel
21:30technologies, including drones and AI-enabled technology, driving forward advanced manufacturing
21:36and production in places such as Glasgow, Derby and Newport, creating demand for highly
21:42skilled engineers and scientists, and delivering new business opportunities for UK tech firms
21:49and start-ups. We will establish a protected budget of £400 million within the Ministry
21:55of Defence—a budget that will rise over time for UK defence innovation—with a clear
22:01mandate to bring innovative technology to the front line at speed. We will reform our
22:08broken defence procurement system, making it quicker, more agile and more streamlined,
22:13and giving small businesses across the UK better access to Ministry of Defence contracts—something
22:19welcomed by the Federation of Small Businesses. We will take forward our plan for Barrow,
22:25a town at the heart of our nuclear security. Working with my hon. Friend the Member for
22:30Barrow-in-Furness and providing £200 million, we will support the creation of thousands
22:36of jobs there. We will regenerate Portsmouth's naval base, securing its future, as called
22:42for by my hon. Friend the Member for Portsmouth South. We will secure better homes for thousands
22:48of military families—the homes that they deserve, denied to them by the previous Government.
22:54Homes for our military families in the constituencies of my hon. Friend the Member for Plymouth-Moorview,
22:59Plymouth-Sutton and Devonport, York Outer and Aldershot—that is the difference that
23:04this Labour Government are making. Finally, we will provide £2 billion of increased capacity
23:13for UK export finance to provide loans for overseas buyers of UK defence goods and services,
23:20because I want to do more with our defence budget so that we can buy, make and sell things
23:25here in Britain, giving further opportunities for our world-leading defence companies and
23:31those who work in them to grow and create jobs here in Britain, as military spending
23:35rightly increases all across Europe. To oversee all this vital work, my right hon. Friend
23:42the Defence Secretary and I will establish a new defence growth board to maximise the
23:47benefits from every pound of taxpayers' money that we spend. We will put defence at
23:54the heart of our modern industrial strategy to drive innovation that can deliver huge
23:59benefits back into the British economy. That is how we make our country a defence industrial
24:07superpower, so that the skills of the future, the jobs of the future and the opportunities
24:13of the future can be found right here in the United Kingdom.