Here is a short post on some key points to watch for tomorrow when the Chancellor presents her ‘Spring Statement’ to the UK parliament (at about 12.30). More questions than answers, I’m afraid, but I will follow up once we know more!
1. The immediate outlook for growth. The OBR is widely expected to halve the 2025 GDP forecast to about 1% (which I think is about right), but how much of this shortfall will be attributed to ‘global headwinds’ and how much is homemade – including the fallout from October’s Budget?
2. The medium-term outlook. Even more importantly, what will the OBR say about growth in the later years of the five-year forecast horizon (which is actually what matters for the ‘fiscal headroom’)? In particular, will the OBR be more optimistic about the impact of increased public investment and supply-side reforms?
3. The changing global backdrop. The OBR will also need to address the new geopolitical risks, notably the demand and supply-side implications of Trump’s tariff wars and higher defence spending (both in the UK and the rest of Europe, led by Germany), as well as the outlook for global energy prices.
4. Anything new on Brexit? Probably not. The OBR had made some pessimistic assumptions about the long-term impact on productivity but, despite what you might read elsewhere, these 15-year projections have next to no implications for the public finances now.
5. The assumptions about interest rates. The OBR revised up its assumptions about borrowing costs in the wake of the October Budget, but since then market rates have risen even more than expected (again, due to a mix of global and also local factors).
6. The amount of ‘fiscal headroom’. The latest media reports suggest that the headroom of nearly £10bn in the October Budget has been more than wiped out, with a shortfall on top of about £4bn. Assuming Reeves wants to restore the headroom to £10bn, she would then need to find about £14bn…
7. Will Reeves raise taxes again now? Probably not. Remember we are supposed to have shifted to just one Budget a year, in the Autumn. Breaking yet another promise would undermine confidence even further. And she probably could find £14bn on the spending side…
8. Where will the axe fall? The government has already announced £5bn of savings from not paying benefits to people who (mostly) do not really need them, and at least another £5bn from departmental efficiency savings, facilities by AI. (Neither of these count as ‘austerity’, in my view, especially in the context of the much bigger increases in public spending announced last October.)
9. What taxes might go up? If she does need to announce more tax increases tomorrow, the frontrunners include extending the freeze on personal tax thresholds, something on fuel duties, and something more on investment allowances. But I suspect she’ll be able to hold off for now.
10. Will this boost confidence? Businesses and markets might be relieved that the additional pain is mainly on the spending side. More on supply-side reforms would help too. But with the fiscal margins so tight, the next bout of bad news could just be delayed until the Autumn.
Plain-speaking Economics 