Scott Kingsley, Senior Wealth Advisor
Chancellor Rachel Reeves' Spring Statement, delivered on 26 March 2025, was less about big announcements and more about setting a tone: steady, serious, and focused on long-term discipline. With sluggish growth, rising borrowing costs, and global uncertainty all weighing on the economy, the message was clear - now is the time to protect public finances and avoid short-term political gambles.
Here's a breakdown of what was announced, how markets reacted, and what it means for businesses and households.
The government's official forecaster, the OBR, has cut its growth forecast for 2025 from 2% to 1%. That's a significant revision and reflects ongoing economic headwinds at home and abroad.
Looking further ahead, the OBR forecasts growth to gradually stabilise, projecting GDP to expand by 1.9% in 2026, 1.8% in 2027, 1.7% in 2028, and 1.8% in 2029. These figures suggest a return to modest but steady growth, although below historic averages, and still vulnerable to external shocks.
At the same time, the UK's "fiscal headroom" - the gap between what it spends and what it can afford to borrow - has shrunk dramatically. Just five months ago, there was a £9.9 billion buffer. That's now fallen to a £4.4 billion shortfall, prompting a £14 billion plan to bring things back on track.
Inflation Outlook
After a recent upward revision, the OBR expects inflation to average 3.2% in 2025, slightly higher than previous forecasts. However, price pressures are expected to ease, with inflation falling back to the Bank of England’s 2% target by 2027. This reflects stabilising energy prices, improved global supply chains, and tighter monetary conditions.
For households and investors, this suggests some continued cost-of-living pressure in the short term but a return to more stable pricing later in the decade.
Employment and Labour Market Trends
Meanwhile, unemployment is expected to peak at 4.5% in 2025 (around 1.6 million people) before falling to 4.1% by 2028. The employment rate is projected to edge down slightly from 60.5% to 60.2% over the period, mainly due to an ageing population.
Childcare reforms and a higher state pension age will help reduce inactivity. However, the long-term impact of new welfare-to-work policies is not yet reflected in the forecast due to limited government detail. Further updates are likely to follow.
The Chancellor is sticking to her fiscal rules, particularly the goal of balancing day-to-day spending and revenue by 2029–30. But even with this package, the OBR warns that the plan could be derailed if external risks escalate. One example it flags is a global trade war, especially involving the US, which could wipe out what little fiscal breathing room the UK has left. Money markets would not react well to this scenario!
This was one of the statement's more proactive areas. Rachel Reeves is betting on reforming the planning system to jumpstart homebuilding and unlock economic growth. According to the OBR, these reforms could increase GDP by 0.2% by 2029–30 and reduce government borrowing by £3.4 billion.
Key targets include:-
The Chancellor is also pushing through with public service reforms to boost productivity and cut long-term costs.
These include:
But, as you might expect, there are trade-offs. The government's own analysis says 3.2 million people will lose financially under the new welfare rules, on average by £1,720 a year. More alarmingly, around 250,000 people (including 50,000 children) could be pushed into relative poverty.
Defence spending is set to rise sharply, reaching 2.5% of GDP, with an emphasis on emerging technologies.
This is framed as a national security and economic strategy to make the UK a "defence industrial superpower."
While the Chancellor avoided any new tax hikes, several changes from the last budget are already in motion:
The Spring Statement also boosts HMRC's capacity:
The tax compliance push is forecasted to raise £2.2 billion by 2029–30, although whether £100 million will be enough to fund this extra capacity remains to be seen.
Alongside the new British ISA launch, the government has announced a review of the broader ISA system to simplify it and promote a stronger investment culture.
While details are yet to emerge, one possibility is a reduction in the cash ISA allowance - a move that could steer savers toward equities via stocks and shares ISAs or the British ISA. This may boost investment in UK businesses but raises concerns about exposing more cautious savers to greater risk.
Markets generally took the Spring Statement in their stride, a sharp contrast to the market volatility triggered by the government's October Budget (and Liz Truss’ mini-budget in September 2022).
Investors welcomed the absence of sudden tax shifts or spending sprees. The statement reinforced a sense of predictability, which markets prize, especially in uncertain times.
The 2025 Spring Statement was never going to be focused on tax changes. It was about reassuring markets, restoring fiscal discipline, and signalling to voters (and investors) that the government has a long-term plan.
It's a cautious approach that largely avoids short-term giveaways, and markets appreciate the stability. However, for households already dealing with higher taxes and rising living costs, the gains will be harder to spot, at least for now.
The real test will come in the Autumn Budget, when the Chancellor may have to confront more questions about the tax system, spending priorities, and how to fund the UK's long-term ambitions in an increasingly volatile world.