Rachel Reeves insisted Labor has “the right economic plan” for a world that has become “even more uncertain” as she delivered a spring forecast that downgraded growth for this year.
The chancellor addressed parliamentarians against a backdrop of rising energy prices, while investors fear the impact of war in the Middle East. The cost of a barrel of Brent crude rose another 7% on Tuesday, to $83.20.
Reeves said he was in close contact with Bank of England Governor Andrew Bailey as they monitored the situation and would meet representatives of the North Sea energy industry on Wednesday.
New forecasts from the independent Office for Budget Responsibility (OBR), published alongside its statement, showed that, as Reeves said, “inflation is down, borrowing is down, living standards are up and the economy is growing.”
“This government has restored economic stability,” he said, in a deliberately understated statement that, as expected, contained no substantive political announcement.
Reeves admitted that GDP growth was now expected to be “slightly slower” this year, down to 1.1% from the previous forecast of 1.4%, after weaker-than-expected data in the final quarter of 2025, but stronger in future years, at 1.6% in 2027 and 2028, and unchanged at 1.5% in 2029 and 2020.
The OBR also predicts that the unemployment rate, which is already almost at its highest level in five years, will continue to rise, to a high of 5.3% this year, up from a previous estimate of 4.9%.
The forecaster said this had been “primarily driven by newcomers to the workforce struggling to find work amid subdued hiring demand.”
Reeves stressed that unemployment was expected to fall to 4.1% by the end of the forecast period – lower than when Labor came to power.
The OBR said it had revised down its short-term growth forecast partly as a result of weaker-than-expected net migration, but had not yet taken into account tough new policies recently announced by Home Secretary Shabana Mahmood, including converting refugee status to temporary.
Despite ordering the OBR not to judge it on its fiscal rules in this spring forecast, Reeves stressed that its margin – or “headroom” – had risen in its latest projections, to £23.6bn from £21.7bn at the time of the November budget.
This improvement has been helped by lower bond yields, or borrowing costs, although they have risen again in recent days as investors bet on a resurgence in inflation.
As the conflict in the Middle East deepens, the chancellor promised that she would “chart a course through that uncertainty, protect our economy against crises and protect families from the uncertainty we see beyond our borders.” He added: “I have no doubt about Britain’s ability to meet the challenges we face.”
Analysts have said that if the price increase continues, it will have a knock-on effect on gasoline prices and household utility bills, which Reeves has promised to reduce.
Markets have also been revising downward expectations of further interest rate cuts in the coming months, as rising energy prices will complicate the Bank of England’s task of tackling inflation.
Shadow chancellor Mel Stride, responding to Reeves’ statement in the Commons, accused her of “absolute complacency”.
“She’s more like the dodgy real estate agent standing in the dilapidated building with no roof, no windows, no floor and saying ‘think of the potential,’” he said.
Reeves insisted the unsettled global situation meant the anti-inflation measures he had taken, including switching from green taxes to general taxes and freezing bus fares and prescription drug charges, were “even more crucial”.
And he praised other recent Labor decisions, including removing the two-child limit on benefits and funding 30 hours a week of free childcare.
Reeves promised to take further action against unemployment and youth inactivity in the coming weeks, blaming his Conservative predecessors. “Young people, in particular, are still suffering the consequences of years of Conservative mismanagement in the last five years of the previous government,” he said.
