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Chancellor's Spring Statement

Ahead of the Chancellor’s Spring Statement there was one piece of good news for the UK economy; a slightly better than expected fall in the rate of inflation to 2.8%. However, the fall was largely driven by a reduction in the price of clothes and shoes; something which the Office for National Statistics (ONS) said could be attributed to “an unseasonably high number of clothing sales” in February.

Aside from this, the Spring Statement was much more muted than some had feared. Sticking to her pledge to only release one fiscal budget each year, the Chancellor left tax and investment plans unchanged from her October 2024 Budget.  In fact, the only major tax plan announced was a further injection of funds to enable HMRC to cut down on tax avoidance. This despite the fact that the Office for Budget Responsibility (OBR) had slashed its growth forecast for the current year from 2% to 1%.

With Rachel Reeves stating that her fiscal rules were non-negotiable, some measures were announced in order to help to move government spending from an anticipated deficit of £36.1b in the 2025/26 financial year towards a surplus in future years. The reform to welfare spending had already been announced with measures being taken to encourage people back into the workplace.

Also pre-announced was the aim to encourage government departments to find 15% efficiency savings. It was also confirmed that defence spending will rise to 2.5% of GDP, with the foreign aid budget being reduced to 0.3% of gross national income to help fund the defence spending rise. There will also be a push to boost defence innovation including the use of drones and AI, alongside the regeneration of some MOD facilities including the Portsmouth naval base.

Labour’s flagship policy to boost house building came in for a mention with funding being provided to train up to 60,000 new construction workers and £2billion being invested in social and affordable housing.

Measures announced in the Autumn 2024 budget such as taxation, employer national insurance, and the minimum wage are not due to take effect until April 2025 and have therefore not yet played out in the economy. Global uncertainties such as the war in Ukraine and the potential effect of US tariffs could also have an impact in the months ahead. Nevertheless, at the time of writing, the overall reaction to the Spring Statement has been fairly neutral with the pound falling slightly and markets largely holding steady.