UK economy faces slower growth in 2026 but improves thereafter, unemployment to peak this year
In a spring statement delivered to MPs, Chancellor Rachel Reeves announced a revised UK economic forecast for 2026, with GDP growth dipping modestly compared with November’s autumn budget. The Office for Budget Responsibility (OBR) now projects that growth will be slightly weaker in 2026, but pick up more than previously expected in 2027 and 2028.
OBR GDP growth forecasts
- 2026: 1.1% (down from 1.4%)
- 2027: 1.6% (up from 1.5%)
- 2028: 1.6% (up from 1.5%)
- 2029: 1.5% (unchanged)
- 2030: 1.5% (unchanged)
Ms Reeves also indicated that unemployment is set to peak later this year after already rising, but will gradually decline from 2027 through 2030, finishing at 4.1% lower than the 2024 level.
In a low-key presentation, Reeves argued that the OBR forecast shows Labour’s policy choices are starting to bear fruit. She highlighted that GDP per capita is now expected to grow more than anticipated in the autumn budget, projecting a cumulative increase of 5.6% by 2029. After adjusting for inflation, she claimed households could be over £1,000 better off per year.
While the chancellor acknowledged the ongoing Middle East tensions, she did not factor in potential economic disruptions from those events into the forecast.
The spring statement, which lasted just 23 minutes, also featured sharp criticisms of opposition parties—Conservatives, Reform UK, the Lib Dems, and the Greens—at a moment when Labour recently lost the Gorton and Denton by-elections.
Borrowing outlook and headroom
Reeves also announced that government borrowing is now forecast to be £18 billion lower than in November. She asserted that borrowing would be lower than the G7 average.
For the first time in the OBR’s 16-year history, there was no assessment of whether Reeves is meeting fiscal targets or how much headroom remains.
Public sector net borrowing projections
- 2026: 4.3% (down from 4.5%)
- 2027: 3.6% (unchanged)
- 2028: 2.9% (unchanged)
- 2029: 2.5% (unchanged)
- 2030: 1.6% (down from 1.9%)
Net migration expectations revised
The forecast for net migration—the difference between arrivals and departures—was revised downward, from 295,000 to 235,000. While lower net migration could reduce tax receipts and public spending, potentially dampening GDP growth, the reduction was less severe than earlier projections this year, which had suggested a decline to about 204,000.
Future plans and questions
Although Reeves did not unveil new policies in the spring statement, she pledged to outline three major choices that will shape the economy’s direction at her upcoming Mais lecture, a long-standing annual event for setting out economic philosophy. The plans are expected to address strengthening international ties, boosting innovation and AI, and reshaping the country’s economic geography.
Reactions from opposition figures were quick and pointed. Conservative shadow chancellor Sir Mel Stride dismissed the statement as complacent and argued there is no clear plan to foster growth or protect headroom. Liberal Democrat Daisy Cooper urged urgent action on the cost-of-living crisis, while Reform UK criticized Reeves for lacking policy ideas to stimulate growth.
Is this the right trajectory for the UK economy, or are more aggressive steps needed to sustain growth and relieve households under mounting cost-of-living pressures? Share your thoughts in the comments.
