26 March 2025
If you are covering the Chancellor’s Spring Statement and the subsequent market reaction, please find below a comment from Lindsay James, investment strategist at Quilter:
“Today’s Spring Statement confirmed what has long been known about the UK economy – growth is weak and the public finances are in a hugely precarious situation. Without taking action today, Rachel Reeves would have broken her fiscal rules. But even with the tweaks announced the fiscal headroom that she has to play with going forward is not only miniscule, but risks being wiped out by the Autumn Budget given the ongoing pressures on the UK economy in addition to the growing threats to global trade. This caused bond yields to spike briefly, but these appear to have since settled once again.
“The Office for Budget Responsibility has also slashed its growth forecast in half, joining a long list of organisations to have already done so. Growth for 2025 will now just be 1%, and climb no higher than 1.9% in any year between now and the end of the decade. While these figures suggest the UK economy will continue to experience sluggish growth, even those figures are a potential best-case scenario as many others have forecast significantly worse. The Chancellor was keen to tout pro-growth planning policies and increased spending in defence, but frankly many of these policies will not produce the goods any time soon.
“Furthermore, the OBR’s forecast that inflation will average 3.2% this year and not return to target sustainably until 2027 will provide households and businesses with little comfort. We still do not know the full extent of the USA’s tariff regime, and should Donald Trump decide to be even more aggressive on this front than he already has been, then inflation at 2% becomes somewhat of a pipe dream.
“That said, today’s Spring Statement did not come attached with the substantial spending cuts some predicted. Cuts to government spending now mean real spending increases of 1.2% rather than the 1.3% that was planned, and is better than many thought possible. It does appear Reeves has found the necessary cuts without either increasing taxes or making deep cuts - the focus has instead been on a multitude of smaller areas.
“Ultimately, this was a Spring Statement that could have been a lot worse for the UK economy. Labour has perhaps learned its lesson that the economy requires a more positive tone from government, and that the burden placed upon businesses at the Budget was enough for now. How long this can last remains to be seen. As Reeves was keen to stress, much of it is out of her hands and down to the global economy.”
