Chancellor Rachel Reeves dealt no surprises at her Spring Statement yesterday (26 Mar), keeping to her promise of only holding one major fiscal event a year.
Her most recent update was tame in comparison to the more comprehensive Autumn Budget in October, but still came with a series of noteworthy announcements that will have knock on effects for the UK economy.
Here, our sister title Portfolio Adviser takes a look at the five main takeaways from this year’s Spring Budget.
Drop in economic growth
The Office for Budget Responsibility (OBR) halved its economic growth forecasts since the Autumn Budget from 2% to 1% for 2025, whilst also upping its inflation expectations from 2.6% to 3.2%.
Reeves said she was “not satisfied with these numbers,” but highlighted that the OBR had improved its economic forecasts from next year onwards.
It revised its gross domestic product (GSP) expectations from 1.8% to 1.9% in 2026, 1.5% to 1.8% in 2027, 1.5% to 1.7% in 2028 and 1.6% to 1.8% in 2029.
Likewise, the OBR lowered its inflation forecast for 2026 from 2.3% to 2.1%, with the consumer price index (CPI) stabilising at the Bank of England’s 2% target from 2027 onwards.
However, Artemis fixed income manger Liam O’Donnell said the OBR “has a habit of being wildly optimistic in its growth and inflation forecasts,” so the longer-term forecasts should be taken with a pinch of salt.
“These optimistic growth forecasts allow the chancellor to meet her self-imposed fiscal rules over the life of parliament,” he added. “But we can’t escape the fact that the government is increasing gilt issuance over the life of this parliament by over £50bn.”
Indeed, Marlborough CIO Sheldon MacDonald noted that people should pay closer attention to the current expectations for 2025, which are far less rosy.
“The bottom line is that markets aren’t going to price a promise of what might happen in 2029 versus an obvious reality of what’s happening in 2025,” he said. “What’s truly relevant is what the chancellor is doing today, what’s happening right now, what the markets need to consider over the next hours, days, weeks and months.
Increased defence spending
Reeves also announced a £2.2bn increased in defence spending from April, with at least 10% of the Ministry of Defence’s budget being invested in new technology.
This £400m pool dedicated to novel technologies such as drones will markedly improve the UK military’s capabilities, according to Tom Bailey, head of research at HANetf.
“Security is defined by technological advantage,” he said. “Investment in these areas is essential.”
Reeves follows several other European countries that have increased their defence spending in response to the US’ withdrawal of military support from the region.
Last week, the European Commission unveiled plans to up defence spending to over €800bn by 2023, with president Ursula von der Leyen saying “Europe must step up” as “the security architecture that we relied on can no longer be taken for granted”.
Welfare cuts
To make up for this heightened spending, Reeves made cuts elsewhere, namely in welfare. The cuts she announced today are forecast to save the government £4.8bn by 2029.
The Department for Work and Pensions anticipates that these moves will affect 3.2 million families who will lose £1,720 in welfare support a year as a result.
These cuts are also estimated to put 250,000 people, including 50,000 children, into poverty by 2029.
Boost to housebuilding
Reeves also pledged to build an extra 170,000 homes by 2029, which would increase housebuilding to its highest level in over 40 years.
It is part of the government’s plan to build 1.5 million new homes this parliament. The latest OBR report estimates that it is on track to build an extra 1.3 million within that timeframe.
To encourage further building, Reeves intends to reform planning regulation such as Green Belt policy. This could result in more development on protected grey belt land, which includes disused car parks and petrol stations.
Saker Nusseibeh, CEO of Federated Hermes, said cutting back regulation preventing housebuilding will boost the sector.
“The chancellor reinforced the shift away from red tape, embracing simplicity and a pragmatic approach to regulation in order to progress her serious plan for growth in the UK’s economy in a changing world,” he added.
ISA reform
The chancellor also hinted at ISA reforms in the Spring Statement, but gave little indication of what it would entail, stating only that she would “look at options”.
Some have speculated that Reeves is considering lowering the cash ISA allowance, which could in turn encourage people to invest in equities.
Rachael Griffin, tax and financial planning expert at Quilter, said ISAs are certainly due some re-examination, but warned that the chancellor should tread carefully.
“It’s encouraging to see the Treasury taking a serious look at ISA reform,” she said. “ISAs are long overdue some careful thought to ensure they are both simple and produce the right behaviours.
“But any reforms must be handled with care. Cash ISAs remain popular for a reason — they offer security, accessibility and certainty, particularly for older savers or those with shorter-term goals. The key will be finding the right balance and encouraging investment without alienating those who rely on safer options.”
This story was written by our sister title, Portfolio Adviser
