Reeves presents spring forecast as OBR cuts 2026 UK growth outlook amid Middle East-driven energy shock
The Facts
- The Office for Budget Responsibility has cut its forecast for UK economic growth in 2026 to 1.1%, down from a previous projection of about 1.3–1.4%.
- The OBR has upgraded its UK economic growth forecasts for 2027 and 2028 to around 1.6%.
- Chancellor Rachel Reeves told Parliament in her spring statement that the government has the 'right economic plan' for the UK, stressing this is especially important given increased global uncertainty.
- Reeves’ spring statement did not include major new tax or spending measures and was framed as an economic and fiscal update rather than a full Budget.
- The OBR’s latest projections indicate that UK unemployment is expected to rise and peak at about 5.3% in 2026 before easing thereafter.
- The OBR now expects UK inflation to fall faster than previously forecast, implying lower inflation this year than in its November projections.
- The OBR’s forecasts used in the spring statement were finalised before the latest escalation of conflict in the Middle East, including US-Israeli strikes on Iran, which has since driven up oil and gas prices and rattled financial markets.
- Reeves said she is in close contact with Bank of England governor Andrew Bailey and plans to meet North Sea energy industry representatives to discuss the impact of rising oil and gas prices.
Context
What did the OBR change in its outlook for UK growth and jobs?
The OBR cut its forecast for UK GDP growth in 2026 to 1.1%, down from about 1.3–1.4% projected in November, but raised its growth forecasts for 2027 and 2028 to around 1.6% BBC,Daily Mail,Daily Mail,Birmingham Mail,Investing.com,Investing.com. It also now expects unemployment to worsen in the near term, with the jobless rate projected to peak at about 5.3% in 2026 before easing in subsequent years Daily Mail,Birmingham Mail,Daily Mail,Investing.com.
How is the Middle East conflict affecting the UK economic outlook presented in the spring statement?
The OBR’s forecasts underpinning the spring statement were completed before the latest escalation of the conflict in the Middle East, including US-Israeli strikes on Iran and subsequent retaliation, which has since pushed up oil and gas prices and increased UK government borrowing costs Guardian,BBC,Guardian,Daily Mail,Daily Mail,Daily Mail,Investing.com,Investing.com,Investing.com. The OBR and market commentators warn that this volatility could have a 'very significant' impact on UK inflation and growth, meaning the published projections may soon be overtaken by events Guardian,Guardian,BBC,Daily Mail,Investing.com,Investing.com.
Did the spring statement introduce new fiscal policies or tax changes?
Reeves’ spring statement was presented as a limited fiscal event focused on updating economic and borrowing forecasts, and multiple outlets report that it contained no major new tax or spending measures, with significant policy changes still reserved for the Autumn Budget Independent,BBC,Daily Mail,Daily Mail,Daily Mail,Investing.com,Investing.com.
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