Economic growth forecast halved for 2025, but Rachel Reeves says planning reforms behind future boost

Chancellor Rachel Reeves has said that the Labour government’s planning reforms are expected to permanently increase the level of growth in the UK economy - but the Office for Budget Responsibility (OBR) has downgraded its forecast for this year by half.

Delivering her spring statement to the House of Commons, Reeves set out the OBR forecast on how the government’s planning reforms will impact the economy.

According to the OBR, these reforms will permanently increase the level of real GDP by 0.2 per cent by 2029-30 and by 0.4 per cent of GDP within the next 10 years – an additional £15.1bn in the economy.

“That is the biggest positive growth impact that the OBR have ever reflected in their forecast, for a policy with no fiscal cost,” Reeves told MPs.

“Taken together with our plans to increase capital spending, this government’s policies will increase the level of real GDP by 0.6 per cent in the next 10 years. Policies to grow our economy, promised by this Labour government, delivered by this Labour government, opposed by the parties opposite.”

The chancellor confirmed there would be no further tax increases beyond what was announced in the autumn budget.

She said that “the responsible choice is to reduce our levels of debt and borrowing in the years ahead so we can spend more on the priorities of working people”.

The OBR forecasts published today presented a mixed picture for the UK.

The independent body downgraded this year’s growth forecast for the UK and every other G7 economy, with the forecast for 2025 down to one per cent from two per cent in the autumn.

However, Reeves said that the OBR has upgraded its growth forecast for next year and the years following, with GDP growth forecasts of 1.9 per cent for 2026, 1.8 per cent in 2027, 1.7 per cent in 2028, and 1.8 per cent in 2029.

Reeves told MPs that inflation is expected to average 3.2 per cent this year before falling to 2.1 per cent next year and meet the two per cent target from 2027 onwards – with inflation having peaked at 11 per cent under the previous Conservative government.

Reeves said day-to-day spending will increase in real terms, above inflation, in every single year of the forecast.

The chancellor told MPs that she would have broken her own fiscal rules had she not announced further reductions in public spending in areas like welfare.

But the Scottish Government has accused Reeves of risking harm to the most vulnerable.

Finance secretary Shona Robison said: “Today’s statement from the chancellor will see austerity cuts being imposed on some of the most vulnerable people in our society. The UK Government appears to be trying to balance its books on the backs of disabled people.

“Not content with these cuts, the UK Government is still expected to short-change Scotland’s public services on additional employer national insurance costs to the tune of hundreds of millions of pounds. This will be felt in public services that people rely on up and down the country - services such as our NHS, GPs, dentists, social care providers, and universities.

“The UK Government’s choice to increase defence investment is welcome, but its choices to shortchange public services and deliver austerity cuts to some of the most vulnerable are deplorable.”

The UK Government had also already announced welfare reforms which included narrowing the eligibility criteria for disability benefits, carrying out a consultation on abolishing the health top-up on universal credit for those under 22 years old and reviewing the PIP assessment.

The move upset many Labour MPs, who warned about the negative impact they would have on disabled people.

In “final adjustments” to these reforms, Reeves announced that the universal credit standard allowance will increase from £92 per week in 2025/26 to £106 per week by 2029/30, while universal credit health payments will be cut to the new claimants by around 50 per cent before being frozen.

She confirmed the OBR predicts £4.8bn in savings through both these reforms and further changes announced in the Spring Statement.

With Reeves herself acknowledging the instability of the global economy and its impact on British public finances, the government's fiscal headroom will likely come under more pressure between now and the next budget.

The government had already made several key announcements around increasing defence spending to 2.5 per cent of GDP from April 2027, with an ambition to spend three per cent of GDP on defence in the next parliament.

Reeves announced that she will use the Treasury reserve to fund an extra £2.2bn of defence spending this year, in addition to the £2.9bn agreed last October.

“We have to move quickly in a changing world, and that starts with investment,” she said.

Responding to the statement, shadow chancellor Mel Stride said the chancellor had made “all the wrong choices”.

“How can we believe this chancellor? How can we trust this chancellor?” he said. “She is the chancellor who said she would not increase borrowing, but she did. She said she wouldn't change her fiscal rules, but she did. She said she wouldn't put up national insurance, but she did. She said she wouldn't cut winter fuel payment, but she did.

“She said she wouldn't tax farmers, but she did, and she said she would not move for more than one fiscal event a year, and she just has, and now we are all paying the price of her broken promises.

“Today's numbers confirm it. We are poorer and we are weaker to govern. To govern, Mr Speaker, is to choose, and this chancellor has made all the wrong choices.”

SNP Westminster leader Stephen Flynn said the government was “imposing a new era of austerity cuts”.

He said: “People in Scotland won't forgive the Labour government for ploughing ahead with billions of pounds of cuts to public services, punching down on the poorest, and making life harder for working families instead of addressing the root causes of Brexit Britain's broken economy.

“The Labour Party has made the wrong political choice, and it is doubling down on failure, by imposing devastating cuts and damaging tax hikes. You can't cut your way to growth - and taking money away from working families and the vulnerable won't improve living standards.”

A version of this story initially appeared on our sister website, Politics Home.