Spring Forecast 2026

On Tuesday 3 March 2026, the Chancellor of the Exchequer, Rachel Reeves, delivered the latest Spring forecast statement, reflecting the views of the independent Budget Responsibility Committee of the Office for Budget Responsibility (OBR).

The Chancellor defended the government’s economic strategy, describing it as the “right one” for the nation. She also pointed to progress on borrowing, with projections showing a decrease of nearly £18 billion. She cited easing inflation and lower borrowing costs, and noted that the OBR’s latest forecasts are consistent with the strategy delivering results.

Charting a course through uncertainty

Addressing the House of Commons, the Chancellor emphasised the importance of the government’s economic plan in an uncertain global environment, reaffirming the commitment to guide the economy through challenges and shield households from external shocks.

Updated economic forecasts

The latest projections are mixed for the UK economy:

GDP growth is expected to reach 1.1% in 2026, slightly down from the 1.4% forecast in November 2025.
Inflation is predicted to fall faster than previously expected — to 2.3% in 2026 and to the Bank of England’s 2% target by the end of the year.

Employment and fiscal resilience

While inflation is easing, the labour market faces challenges. Unemployment is expected to peak at 5.3%, up from the 4.9% forecast at the Autumn Budget. The government’s fiscal headroom has increased from £21.7bn to £23.6bn, providing a buffer against shocks.

The OBR’s forecast does not fully reflect possible effects of higher energy prices linked to conflict in the Middle East. Such turmoil could reignite inflation and delay interest rate cuts; rising oil and gas prices have already contributed to volatility in gilts.

Economic and financial outlook

This Spring forecast from the OBR’s Budget Responsibility Committee is an interim update ahead of the next Budget. The financial backdrop remains demanding: over the past 20 years, UK public sector debt as a share of GDP has almost tripled and is nearly double the average for comparable advanced economies.

Public sector net borrowing has stayed high — around 5% of GDP over the past four years. Medium-term plans to reduce borrowing have been set back by unexpected shocks, slower growth, and short-term policy changes.

Economic growth and inflation expectations

Core forecasts are close to those published in November 2025:

Productivity growth is expected to rise to 1% in the medium term.
Labour supply growth is forecast to slow from recent highs to 0.5% by 2030, reflecting lower net migration and an ageing population.

Because of shorter-term cycles, real GDP growth is projected to slow from 1.4% in 2025 to 1.1% in 2026, then average 1.6% annually over the rest of the forecast period. Easing in the labour market and declining inflation in energy and food prices should help overall inflation reach the 2% target by late 2026.

Borrowing projections and risks

Public sector net borrowing is projected to fall from 5.2% of GDP in 2024/25 to 4.3% this year, reaching 1.6% by 2030/31 — slightly faster than the November forecast, largely due to stronger revenue. Public sector net debt is expected to stay broadly stable at around 95% of GDP in the early 2030s.

Central forecasts sit between many possible outcomes. Risks include global events (including conflict in the Middle East), trade policy, interest rates, and productivity. Long-term pressures include an ageing population and spending needs in defence, education, and welfare.

Inflation trends and future projections

Inflation affects household budgets and business investment. CPI returned to the Bank’s 2% target in mid-2024, helped by easing supply chains and stabilising energy prices after the pandemic.

Inflation rose above target again in 2025, driven by higher energy and food prices, administered prices, and strong wage growth.

Projections

The OBR forecasts CPI inflation falling from 3.4% in 2025 to 2.3% in 2026, reaching 2% from 2027 (in practice, around late 2026). The expected easing is attributed mainly to domestic slack in the economy.

Other supporting factors include:

Administered price increases dropping out of the annual comparison, easing services inflation.
Food price inflation expected to decline as global prices fall.
Lower wholesale energy costs and policy measures reducing utility inflation.

Risks around the central case

By 2030, the overall CPI level is projected 0.4% lower than in the previous forecast — partly due to a more negative output gap and partly lower energy prices. The Budget Responsibility Committee notes roughly a one-in-five chance that CPI in 2026 is above 2.8%, and a similar chance it is below 1.9%.

RPI is forecast to fall from 4.1% in 2025 to 3.1% in 2026, then average 2.9% from 2027 to 2029 and 2.3% in 2030. The GDP deflator is expected to move broadly in line with CPI.

UK debt interest spending

Debt interest is measured as a share of GDP. The Budget Responsibility Committee expects this share to rise from 3.6% in 2025/26 to 3.8% by 2030/31 — nearly double the roughly 2% of GDP average in the decade before the pandemic.

In cash terms, nominal debt interest is forecast to rise from £110 billion in 2025/26 to £137 billion by 2030/31. Compared with November 2025, the profile as a share of GDP and revenue is largely unchanged, but the level is on average about £2.8 billion a year lower than previously expected.

Drivers of that revision include:

A weaker outlook for RPI inflation, which lowers costs on index-linked gilts (material reductions in the first two years, then smaller).
Lower market expectations for Bank Rate and gilt yields, reducing projected costs by about £1.0 billion a year on average.
Technical financing factors, including a lower net financing requirement, trimming interest by up to £1.8 billion by 2030/31.

Labour market

Recent data show rising unemployment, higher redundancies, and slower private-sector pay growth — pointing to a more subdued labour market.

The central forecast has unemployment reaching 5.3% in 2026, linked to weaker labour demand as output sits below potential; new entrants may find hiring cautious. Payrolled employment flows remain low, with weak inflows.

After the expected 2026 peak, unemployment is forecast to ease toward an equilibrium of about 4.1% by 2030. The employment rate could fall to 60.4% in 2026, then recover to 60.7% by 2030, though uncertainty is considerable.

The central case treats much of the rise as cyclical; some evidence suggests a structural component. The outlook is complicated by technology (including AI), higher employer National Insurance costs, and real wage growth that has run ahead of productivity.

The OBR discusses alternative scenarios: faster recovery in a cyclical upside case, or a deeper cyclical downturn with unemployment up to 6.8% in 2026/27; structural scenarios consider a higher equilibrium unemployment rate (5.5%) driven by technology or persistent cost pressures.

Housing market

The Budget Responsibility Committee expects house price inflation to average just over 2.5% for the remainder of the forecast period — broadly in line with income growth and consistent with the November outlook.

For mortgage holders, the average effective interest rate on outstanding loans is projected to rise from 4.1% this year to 4.5% over the rest of the period — 0.3 percentage points lower than in November, reflecting lower rate expectations.

Net housing supply is forecast to dip from about 260,000 a year in the early 2020s to a low of 220,000 in 2026/27 (slower starts), then recover to just over 305,000 by 2030/31, partly reflecting planning reforms (to be reassessed in the next Autumn Economic and Fiscal Outlook).

Property transactions were volatile in 2025 (including activity brought forward ahead of stamp duty changes and Budget speculation). For the year as a whole, transactions rose by nearly 11% to about 1.2 million — the highest since 2022.

Public sector receipts (tax)

Total public sector receipts are projected to rise from 38.8% of GDP in 2024/25 (about £1.1 trillion) to 42.7% of GDP by 2030/31 (about £1.6 trillion).

National Accounts taxes are forecast to rise from 34.5% of GDP to a peak of 38.5% — a historic high for the UK and 5.6 percentage points above the 32.9% of GDP seen in 2019/20.

Main drivers

Between 2024/25 and 2030/31, the increase in the tax take is driven mainly by:

Personal taxes (income tax and NICs) — about 2.4 percentage points of the rise, including the October 2024 increase in employer NICs and frozen personal thresholds until April 2031, which gradually pull more income into higher bands.
Capital taxes — about 0.9 percentage points, supported by higher equity prices and changes to inheritance tax and capital gains tax from the October 2024 Budget.

Since November, medium-term receipts are slightly higher (about 0.2 percentage points of GDP by 2030/31), partly due to stronger equity markets.

International comparison and risks

Versus other advanced economies, the overall tax level is not necessarily extreme, but marginal rates may sit above the OECD average, with implications for work, save, and invest incentives.

Near-term receipts for 2025/26 are £3.7 billion higher than in November (notably self-assessment income tax and capital gains tax around the January deadline). By 2030/31, total receipts are projected £12 billion higher (0.3% of GDP), with underlying forecast differences adding about £8 billion a year on average from 2027/28.

Special educational needs (SEND)

In late 2025, the Budget Responsibility Committee highlighted pressure on SEND funding, including a potential £6.3 billion shortfall by 2028/29 within existing departmental limits.

The Chancellor announced £4.1 billion additional RDEL for 2028/29 and reforms in the white paper “Every Child Achieving and Thriving”. Official models assume slower growth in new Education, Health and Care Plans (EHCPs) and that the share of pupils with an EHCP begins to fall from 2029/30. Detail on how reforms deliver savings is still limited, and past reforms to similar programmes have not always met savings expectations. Short-term costs could rise if assessments surge before September 2029 rule changes.

Welfare spending

Around half of welfare spending sits under the “welfare cap”, which excludes the state pension and highly cyclical benefits.

For the current year, welfare spending is forecast to rise by £18 billion (5.8%) to about £333 billion (10.9% of GDP). Thereafter it rises by about £15 billion (4.1%) a year in nominal terms, reaching £407 billion (11.2% of GDP) by 2030/31 — about 1.2 percentage points of GDP above 2019/20.

Drivers include pensioner and health-related benefits, demographic change, and the triple lock. State pension age increases from 66 to 67 between 2026 and 2028, partially offsetting pensioner spending (about 0.3% of GDP by 2030/31).

Incapacity caseloads are projected to rise by 0.6 million to 4.0 million between 2024/25 and 2030/31; disability caseloads by 2.3 million to 8.8 million.

Defence spending

Geopolitical uncertainty means further increases in defence spending may be needed over the current Spending Review period. Policy is anchored in the Strategic Defence Review and Defence Investment Plan.

A prominent objective is 3.5% of GDP by 2035. The path matters: a linear ramp could add about 0.2% of GDP in the final year of the current Spending Review alone — roughly £6 billion — that must be funded by reallocation, tax, or borrowing, with trade-offs for other public services.

Net migration

UK population growth depends significantly on net inward migration. After a drop from earlier highs (visa policy and stabilising international student numbers post-pandemic), central forecasts see net inward migration rising to about 290,000 by 2030, mainly from non-EU flows.

The ONS revised recent estimates downward, largely from how British nationals’ net migration is measured — average net emigration of British nationals for 2021–2024 is now about -92,000 a year versus about -6,500 previously.

Following that revision, the central forecast for overall net inward migration is lower by about 60,000 a year (about 50,000 adults), driven by more negative assumptions for British nationals — roughly 200,000 fewer adults in the UK population by 2030 than in earlier forecasts.

Risks include student and skilled-worker policy, Ukrainian arrivals who remain long term, EU flows, and future policy on indefinite leave to remain and asylum.

The Chancellor noted complex effects on the economy and living standards. A larger outflow of younger British adults reduces labour supply slightly but has offsetting small effects on productivity assumptions, leaving the central potential output per person outlook broadly unchanged.

Planning for your financial future

In uncertain times, understanding how economic shifts could affect personal or business finances supports long-term stability. If you would like to explore the Spring Forecast 2026 or your own plans in more detail, please contact us for tailored guidance.

Important information

This Spring Forecast 2026 summary was produced on Tuesday, 3 March 2026, and is for your general information only. It is not intended to address your particular requirements. The content should not be relied upon in full and does not constitute advice. Although every effort has been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or will remain accurate in the future. Individuals or companies should act only after receiving appropriate professional advice and examining their particular situation. We cannot accept responsibility for any loss arising from acts or omissions taken in relation to this content. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change, and their value depends on an individual’s personal circumstances.