When is inflation expected to return to the 2 per cent target?

The OBR forecasts CPI inflation to reach 2.3 per cent in 2026, returning to the Bank of England's 2 per cent target by late 2026. CPI was 3.4 per cent in 2025, so the direction of travel is encouraging. The OBR notes genuine upside risks, including higher energy prices linked to geopolitical developments, which are not fully reflected in the central forecast.

What does the freeze on income tax thresholds mean for my finances?

Income tax thresholds are frozen through to April 2031. As salaries rise, a larger share of income falls into higher bands, increasing your effective tax rate without any change to headline rates. For individuals approaching or crossing the higher rate or additional rate threshold, the cumulative effect compounds over several years and can be significant. Making full use of ISA and pension allowances is one of the most effective ways to manage the impact.

What does the forecast say about mortgage rates and house prices?

The OBR projects house price inflation of around 2.5 per cent annually for the remainder of the forecast period, broadly in line with income growth. The average effective mortgage rate on outstanding loans is projected to rise from 4.1 per cent to around 4.5 per cent over the period, though this is lower than earlier forecasts following revised interest rate expectations.

What does a rising overall tax burden mean for financial planning?

Total tax receipts are forecast to reach 42.7 per cent of GDP by 2030/31 — a historic high for the UK. This is driven by frozen thresholds, rising capital taxes and expanding receipts from income tax and NICs. For individuals with savings, investments or assets outside ISAs and pensions, the cumulative effect is worth reviewing regularly. Making full use of annual ISA and pension allowances remains one of the most straightforward ways to reduce the personal impact.

Spring Forecast 2026 | Burlington Financial Solutions

Q: What is the OBR's UK growth forecast for 2026?

The OBR revised its UK GDP growth forecast down to 1.1 per cent for 2026, from 1.4 per cent at the Autumn Budget 2025. The medium-term outlook is for modest recovery, with real GDP growth projected to average around 1.6 per cent annually from 2027 onwards. This is a relatively subdued outlook, and risks remain on both the upside and downside, including from geopolitical developments not fully reflected in the central forecast.

On Tuesday 3 March 2026, Chancellor Rachel Reeves delivered the Spring Forecast Statement, accompanied by updated projections from the Office for Budget Responsibility. This is an interim update rather than a full Budget, but it provides a revised picture of the UK’s economic and fiscal outlook ahead of the next major statement.

The Chancellor pointed to progress on borrowing, with the OBR projecting a reduction of nearly £18 billion against previous forecasts, and cited easing inflation and lower borrowing costs as signs the government’s strategy is working.

Growth and inflation

The OBR revised its UK growth forecast slightly downward. GDP is now expected to grow by 1.1 per cent in 2026, compared with 1.4 per cent forecast at the Autumn Budget 2025. The medium-term picture remains one of modest recovery, with real GDP growth projected to average around 1.6 per cent annually from 2027 onward.

Inflation is expected to fall more quickly than previously anticipated. CPI is forecast to reach 2.3 per cent in 2026, returning to the Bank of England’s 2 per cent target by late 2026. The easing is attributed to domestic slack in the economy, falling food prices and lower utility costs as wholesale energy prices decline.

CPI was 3.4 per cent in 2025, so the direction of travel is encouraging, though the OBR notes that risks remain. It estimates roughly a one-in-five chance that CPI in 2026 is above 2.8 per cent, and a similar chance it falls below 1.9 per cent. Geopolitical developments, including higher energy prices linked to the Middle East conflict, are not fully reflected in the central forecast and represent a genuine upside risk to inflation.

Labour market

The employment picture is less positive. Unemployment is expected to peak at 5.3 per cent in 2026, above the 4.9 per cent forecast at the Autumn Budget and above the current level. The OBR points to weaker labour demand as output runs below potential, with private-sector pay growth slowing and redundancies rising.

After the 2026 peak, unemployment is forecast to ease gradually, reaching an equilibrium of around 4.1 per cent by 2030. The OBR notes uncertainty about how much of the rise is cyclical and how much structural, with technology, AI and employer National Insurance cost pressures all complicating the picture.

Borrowing and the public finances

Public sector net borrowing is projected to fall from 5.2 per cent of GDP in 2024/25 to 4.3 per cent this year, declining to 1.6 per cent by 2030/31 — slightly faster than the November forecast, largely due to stronger tax receipts.

Public sector net debt is expected to stabilise at around 95 per cent of GDP in the early 2030s.

The government’s fiscal headroom has increased marginally, from £21.7 billion to £23.6 billion, providing some buffer against shocks. However, the OBR notes that over the past 20 years UK public sector debt as a share of GDP has nearly tripled and is close to double the average for comparable advanced economies. Medium-term plans to reduce borrowing have repeatedly been set back by unexpected shocks and slower-than-forecast growth.

Taxes and receipts

Total public sector receipts are projected to rise from 38.8 per cent of GDP in 2024/25 to 42.7 per cent by 2030/31. National Accounts taxes are forecast to reach 38.5 per cent of GDP by 2030/31 — a historic high for the UK, more than 5 percentage points above the 2019/20 level.

The main drivers of the rising tax take are personal taxes (income tax and NICs) and capital taxes. Frozen income tax thresholds through to April 2031 continue to generate fiscal drag, gradually pulling more earnings into higher bands. Capital taxes are rising partly due to higher equity prices and the inheritance tax and capital gains tax changes announced in the October 2024 Budget.

For individuals with investments, savings or assets outside ISAs and pensions, the cumulative effect of frozen thresholds and rising capital tax rates is worth reviewing.

Housing

House price inflation is expected to average just over 2.5 per cent for the remainder of the forecast period, broadly in line with income growth. The average effective mortgage interest rate on outstanding loans is projected to rise from 4.1 per cent this year to around 4.5 per cent over the rest of the period, though this is lower than the November forecast following revised rate expectations.

Net housing supply is forecast to dip to around 220,000 homes per year in 2026/27 before recovering toward 305,000 by 2030/31, supported by planning reforms.

Debt interest

The cost of servicing government debt is projected to rise from 3.6 per cent of GDP in 2025/26 to 3.8 per cent by 2030/31, in cash terms rising from £110 billion to £137 billion annually. This is nearly double the roughly 2 per cent of GDP average in the decade before the pandemic.

The profile is largely unchanged from the November forecast, though it is slightly lower in absolute terms, driven mainly by weaker RPI inflation reducing costs on index-linked gilts.

What it means for financial planning

An interim forecast does not typically bring sweeping policy changes. Its significance for financial planning is primarily contextual — it tells us where the economy is heading, how taxation is expected to evolve, and what the interest rate and inflation environment is likely to look like over the next few years.

The direction of travel matters. Falling inflation supports real income recovery and could allow interest rates to ease further. A rising overall tax burden — even without headline rate increases — underlines the value of making full use of tax-efficient wrappers, ISAs and pension contributions.

If you would like to discuss how the latest economic outlook bears on your own financial plans, we are happy to talk it through. We work with individuals and families across Worcestershire and Warwickshire and are always glad to help put the bigger picture in the context of your personal situation.

This article reflects our understanding of the Spring Forecast 2026 and is for general information only. It does not constitute personal financial advice. Tax rules, rates and allowances can change, and their value depends on individual circumstances. The value of investments can fall as well as rise, and you may receive back less than you invested.

Spring Forecast 2026