Budget watchdog downgrades growth forecast for 2026 as Reeves defends plan

Chancellor Rachel Reeves said she had the “right economic plan” for the UK despite the budget watchdog slashing its forecast for growth this year.

The Office for Budget Responsibility indicated gross domestic product will increase by 1.1% in 2026, down from the 1.4% it forecast in November.

But the watchdog upgraded its forecasts for 2027 and 2028 from 1.5% to 1.6%.

Updating MPs on the forecasts in her spring statement, against the backdrop of the war in the Middle East, Ms Reeves said: “This Government has the right economic plan for our country, a plan that is even more important in a world that in the last few days has become yet more uncertain.”

She added: “The new forecasts from the Office for Budget Responsibility confirm that our plan is the right one – inflation is down, borrowing is down, living standards are up and the economy is growing.”

The Chancellor said the changes in GDP forecast took account of a fall in net migration and said average growth across the next five years was “largely unchanged” despite this year’s downgrade.

“But I am not yet satisfied with these forecasts,” she said, acknowledging “the economy is not yet working for everyone”.

Unemployment is to peak later this year and then fall in every year of the forecast period, ending the period at 4.1% – lower than it was at the start of the Parliament, the Chancellor said.

The OBR said the unemployment rate would hit  5.3% this year, up from the 4.9% forecast in November, with the rates in 2027 and 2028 also higher than expected in the autumn.

The watchdog said entrants into the labour force were “struggling to find work amid subdued hiring demand”.

Slower wage growth contributes to lower inflation forecasts, with the consumer prices index falling from 3.4% in 2025 to 2.3% this year and hitting the Bank of England’s 2% target from 2027.

Borrowing is to reduce by “nearly £18 billion compared to the autumn”, and public sector net borrowing is expected to fall from 4.3% this year to 3.6% next year, then 2.9%, 2.5% and 1.8% in 2029-30, she said.

The Chancellor’s statement did not include any tax and spending changes, after Ms Reeves committed to delivering just a single budget a year.

Shadow chancellor Sir Mel Stride called it a “surrender statement” saying: “As our economy bleeds out, what does (the Chancellor) do? She comes to this house with nothing to say and with no plan, unless of course doing nothing is a cunning plan to avoid those U-turns further down the line.”

The Confederation of British Industry’s chief economist Louise Hellem said: “Reducing the cost of living, cutting borrowing and growing the economy are the right priorities, but they can’t be achieved without clear efforts to tackle the high cost of doing business.

“That’s what will give firms the headroom they need to invest in the technology, trade and training that drive jobs and wage growth.

“That requires government and business to work in partnership to lower industrial energy costs, find practical solutions to implementing the Employment Rights Act, and design a tax system that rewards, rather than penalises, employment, investment and risk-taking.”