The UK economy is now expected to expand at a much slower rate this year than initially anticipated, according to the government's official forecaster.

Delivering her Spring Statement, Chancellor Rachel Reeves revealed that the Office for Budget Responsibility (OBR) now predicts a 1% growth rate for 2025—down sharply from the 2% forecast made in October.

"I am not satisfied with these numbers," Reeves stated, emphasizing her commitment to driving economic expansion.

However, the OBR has revised its longer-term projections upwards, forecasting a larger economy by 2029-30 compared to its October outlook. Growth estimates now stand at 1.9% for 2026, 1.8% for 2027, 1.7% for 2028, and 1.8% for 2029.

The watchdog factored in new planning and housing policies introduced by the government in July, concluding that these reforms would boost GDP by 0.2% by the end of the parliamentary term and by 0.4% over the next decade.

"The OBR now anticipates housebuilding will reach a 40-year high of 305,000 per year by the end of the forecast period," Reeves noted. Labour has pledged to build 1.5 million homes across England by 2029-30, with Reeves describing their progress as "within touching distance" of this goal.

On inflation, the OBR raised its forecast for 2024 to 3.2%, though it expects price rises to settle at the Bank of England's 2% target by 2027. Meanwhile, real household disposable income per person is projected to increase by an average of 0.5% annually, slightly exceeding October’s estimate due to stronger wage growth. According to Reeves, this translates to households being over £500 better off per year under Labour compared to the previous administration.

Heading into the Spring Statement, the chancellor faced scrutiny over her ability to uphold self-imposed fiscal rules, including:

Avoiding borrowing for everyday public spending Ensuring government debt declines as a share of national income by the end of this parliament

In October, the OBR estimated that Reeves had a £9.9bn buffer for day-to-day spending by 2029-30. However, rising borrowing costs meant she would have fallen £4.1bn short of this target. Reeves said that measures introduced on Wednesday—including departmental spending adjustments and extensive welfare reforms—fully restored this headroom to £9.9bn.

The OBR warned that global economic risks had intensified since October. In a worst-case scenario, if U.S. trade policies under President Donald Trump result in weaker-than-expected growth, the UK’s fiscal buffer could be almost entirely wiped out.

Paul Johnson, director of the Institute for Fiscal Studies, cautioned that leaving such a slim margin under "iron-clad" fiscal rules made the government vulnerable to unforeseen events. At £9.9bn, the buffer is the third smallest a chancellor has had since 2010—significantly lower than the £30bn historical average.

"We’re likely to see months of speculation about potential tax hikes in the autumn," Johnson predicted.
Paul Dales, chief UK economist at Capital Economics, echoed this concern, suggesting that at some point, the government may be forced to break its election promises and raise taxes, given the limits on both public borrowing and non-defence spending cuts.

On the second fiscal rule, Reeves said the OBR now expects it to be met two years ahead of schedule, with a £15.1bn buffer by 2029-30.