Spring Statement: Reeves defends Labour’s agenda as growth forecast slashed
Chancellor Rachel Reeves has defended Labour’s high tax and expenditure policies as new economic forecasts provided a bleaker outlook on growth and unemployment this year.
In a statement to the House of Commons, Reeves said updated forecasts by the Office for Budget Responsibility (OBR) showed her decisions as Chancellor were “starting to pay off”.
Her message on “stability” came against the backdrop of an escalating conflict in Iran and the Middle East, with Reeves revealing that she was set to meet with energy giant bosses in the North Sea on Wednesday.
Despite the Chancellor’s bullish tone, the UK economy is forecast to grow at a slower pace than previously expected this year, with growth expected to come in at 1.1 per cent this year compared to a previous prediction of 1.4 per cent.
The OBR also said unemployment would peak later this year, with the rate currently standing at 5.2 per cent. The watchdog said unemployment would fall to 4.1 per cent by the end of the parliament.
Shadow Chancellor Mel Stride accused Reeves of being “in denial.”
In more positive figures for the government, the OBR slightly revised up its growth forecasts for 2027 and 2028 while inflation was projected to fall at a faster pace this year than pencilled in at the Budget in November.
Reeves also revealed that, as a result of changes in calculations around government borrowing, the level of headroom had increased to from £21.7bn to £23.6bn.
“I know that an economy cannot be working if it is delivering only for a few people, in a few places,” Reeves said.
“I believe that the working people who keep our country moving deserve a fair day’s pay for an honest day’s work.”
Reeves added: “Borrowing is down, living standards are up, and the economy is growing.”
Economists at Montfort and Mizuho said some of the OBR’s predictions risk being “obsolete” and “irrelevant” given blockages in trading routes across the Middle East.
Shadow chancellor Mel Stride hit back at Reeves as he said Labour’s economic agenda, which has involved raising the tax burden to a post-war high, had damaged the jobs market and hit “entire sectors of our economy”.
“The Chancellor has the temerity to suggest that she is creating the conditions for renewed growth. She is rather like the dodgy estate agent standing in a crumbling building and saying ‘just think of the potential’.
“That potential has been undermined by the terrible state of our public finances.”
Reeves looks to shore up support
Reeves’ Spring Statement was billed as an uneventful affair with no fresh policy announcements in order to give businesses further confidence to invest and ease simmering tensions around the government.
Despite weeks of speculation over the pace of defence spending, the costs of higher minimum wages and the pains students face in paying off university loans, Reeves steered clear of touching on policy detail.
Treasury officials looked to hail a rise in investment forecasts, improved GDP per capita predictions and slightly larger fiscal headroom, created by lower debt interest payments and higher tax receipts from surging equity prices.
Some City researchers have suggested that issues around the size of public sector debt, which is nearing 100 per cent as a share of GDP, rising youth unemployment and commitments to upgrade the UK’s armed forces have been kicked into the long grass.
It could make the stakes at this year’s Budget higher as stronger economic headwinds knock government plans off course.
The Labour Party is facing intense pressure to alter its economic agenda given the electorate’s anger at the government’s policies.
Reeves has fronted the government’s hopes of a turnaround as Chancellor, with new CityAM/Freshwater Strategy polling suggesting that she enjoyed a small rise in her approval ratings over February.
The only politician to score worse than her approval rating of -38 was Prime Minister Keir Starmer on -42.
Officials are also likely to be alarmed by high levels of pessimism among voters about the state of the UK economy.
Polling showed that half of respondents believed the UK economic outlook was set to worsen over the next 12 months while 39 per cent expected their household finances to deteriorate.
Figures may yet worsen as the impacts of higher energy prices ripple through the UK economy over the coming months.
Jeremy Hunt sends Chancellor warning on oil prices
In the morning, former Chancellor Jeremy Hunt reprimanded the government for its stance on the war and refusing to allow the US to use UK military bases for attacks on the Iranian regime.
Hunt said the UK economy was likely to suffer greater damage from turmoil in the Middle East than the US economy given dependencies on supply chains, particularly relating to energy.
He suggested a 20 per cent increase in oil and gas prices could add one percentage point to inflation and knock 0.5 percentage points off growth.
“For the UK, I think we’ve really got the worst of all worlds,” Hunt said.
“On the one hand, America is questioning our loyalty and that is very significant when it comes to, for example, their support in Ukraine, where we badly need them.
“We are going to be suffering far more than the American economy from a rise in oil and gas prices.”
The Brent Crude Oil price has risen by over five per cent to $81 per barrel while gas prices spiked by over 90 per cent as QatarEnergy, the state company, ceased production of liquified natural gas due to the conflict.
Method note: Freshwater Strategy interviewed n=1,221 eligible voters in the UK, aged 18+ online, between 27 February – 1 March 2026. Margin of Error +/- 2.8%. Data are weighted to be representative of UK voters. Freshwater Strategy are members of the British Polling Council and abide by their rules.