UK Spring Statement 2025: Cautious optimism amid global uncertainty
Chancellor of the Exchequer, Rachel Reeves, used the Spring Statement on Wednesday 26 March to set out the Labour government’s plans for the UK economy. It was the first official opportunity for the Chancellor to provide an update on the economy since her fiscal statement last October and the significant world events that have since played out. “The world has become more uncertain,” said the Chancellor, “And borrowing costs are on the rise for many major economies.”
Fiscal rules and economic stability
Despite speculation to the contrary, the Chancellor reiterated that the fiscal rules she set out in the October Budget are non-negotiable and are essential for ‘bringing stability and security to working people and the economy’.
The government has set two rules. First, the ‘Stability Rule’, which ensures public spending is under control, the current budget is balanced by 2029-30, and the day-to-day spending is met by tax receipts. Second is the ‘Investment Rule’, which ensures that net financial debt falls by the end of the forecast period while enabling the government to invest alongside business. “The government’s task is to secure Britain’s future in a world that is changing before our eyes,” said the Chancellor.
Housing market disappointment: Missed opportunities for property sector and first-time buyers
The Spring Statement included several announcements we were expecting, including welfare reforms, a boost to defence spending and a cut to overseas aid, plus an unexpected freeze on the health element of Universal Credit. But with regard to the property market, significant opportunities were missed.
“The Spring Statement was underwhelming as far as the housing market is concerned. The Chancellor missed an opportunity to boost all-important transactions by extending the stamp duty concession or introducing some discount for downsizers. She also did nothing for first-time buyers, with no incentives or assistance to get them on the housing ladder – a significant shame as first-time buyers are the lifeblood of the market and enable existing homeowners to move up the ladder. Housebuilding, easing planning rules and improving the supply of new homes is vital but there was very little detail as to how these targets will be delivered. It’s expected that the Spring Statement will have very little immediate impact on interest rates and it’ll be business as usual for the mortgage market."
Economic growth forecast: Modest expectations
Alongside the Spring Statement, the Office for Budget Responsibility (OBR) announced its growth forecast for the coming year. In recent months the growth outlook has been repeatedly revised downward so it was of little surprise that the OBR cut its forecast from 2% to 1%. However, this is more optimistic than the Bank of England forecast of 0.7%.
The OBR’s revised economic growth forecast takes into account the Chancellor’s policy changes, including welfare reforms and day-to-day departmental spending reductions that restore the £10 billion surplus she had in October. Due to higher debt interest costs and other forecast changes, this was due to be in deficit by £4 billion in 2029-30. The OBR notes however, this remains a small margin against the risk of further shocks to interest rates, productivity or global trade.
The Chancellor has made it clear that the Spring Statement is exactly that – a ‘statement’ – and not an additional budget; the main fiscal policies are set annually with the Autumn Budget and Labour has pledged to only deliver one budget a year. With just a small margin to cushion a global trade war or higher borrowing costs, the OBR estimates that Reeves has just over a 50% chance of meeting her own borrowing and debt rules by the end of the decade.
“The OBR cutting the forecast for 2025 to 1% was wildly anticipated and thus has caused little to no reaction at all on the stock market. In fact, it’s the spending cuts statements and fiscal policies of President Trump that are having the greater impact on the stock market and global inflationary concerns currently. This has led to a rise in government bond yields, which in turn has impacted mortgage rates and swap rates. The unpredictable nature of global political developments adds an extra layer of uncertainty that we must navigate when advising our wealth management clients. For the team at SPF, there remains a clear emphasis on the need to closely monitor global economic and political developments, beyond just UK-specific policies. This reflects the interconnected nature of financial markets and the importance of taking a holistic, international view when advising high-net-worth clients. We maintain a cautious, nuanced approach to navigating the uncertain economic and political environment on behalf of our wealth management clients. That being said, we are carefully looking at the both the consumer and business confidence index’s, as should they indicate a serious concern then we might reduce our equity exposure if we felt a recession was now coming."
