The UK’s economic forecast has been downgraded for 2026 but will then improve – and unemployment will peak this year, the chancellor has revealed.
Giving her spring statement in the House of Commons, Rachel Reeves said gross domestic product (GDP) will now grow “slightly slower in 2026” than forecast at November’s autumn budget, but will increase by more than was expected in 2027 and 2028.
Ms Reeves also said unemployment is set to peak later this year, after already rising, but will fall from 2027-2030, ending at 4.1% lower than it was in 2024.
The chancellor, who had promised a low-key statement, said the Office for Budget Responsibility’s (OBR) forecast shows that Labour’s choices “are starting to pay off”.
She said GDP per capita is now set to grow “more than was expected” in the autumn budget, with growth of 5.6% by 2029.
“After accounting for inflation, people are forecast to be over £1,000 a year better off per year,” Ms Reeves said.
She acknowledged the situation in the Middle East but did not address the potential for that to disrupt the economy, and the forecast has not taken that into account.
The chancellor used the spring statement, which only lasted 23 minutes, to hit out at opposition parties, criticising the Conservatives, Reform, the Lib Dems and the Greens – who Labour just lost the Gorton and Denton byelection to.
The chancellor addresses MPs
Ms Reeves also revealed the OBR has forecast government borrowing will be £18 billion lower than its November prediction.
“We are set to borrow less than the G7 average,” she said.
The forecast for net migration (the difference between immigration and emigration) was a lot lower than previously predicted, with the estimate of 295,000 being reduced to 235,000.
This means fewer tax receipts and spending, which could lead to lower GDP – however, it was not as much of a reduction as predicted earlier this year when it was expected to drop to 204,000.
While the chancellor made good on her promise not to announce any new policy, she said she would “set out three major choices that will determine the course of our economy into the future” in a fortnight’s time at her Mais lecture, an annual banking and finance event where successive chancellors have set out their economic philosophy and policies.
She said she would reveal how the government will strengthen global relationships, back innovation and harness the power of AI, and transform “our economic geography”.
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