The UK’s economic growth forecast is set to be halved, raising concerns over Labour’s financial strategy

The Office for Budget Responsibility (OBR) is preparing to halve the UK’s official economic growth forecast for the 2025 financial year, reducing expectations from 2% to around 1%. The downgrade, set to be announced next week, presents a major challenge for Chancellor Rachel Reeves and the Labour government, which has made economic growth a central policy focus.

Rachel Reeves is expected to attribute the weakened outlook to worsening global economic conditions, citing Donald Trump’s proposed tariffs as a key factor impacting trade and financial stability. The revision comes as the government faces political pressure following its recent £5 billion cut to the welfare budget, a move critics argue signals a return to austerity-era policies.

The Bank of England (BoE) has opted to maintain interest rates at 4.5%, citing ongoing inflation concerns and rising costs for businesses. While rate cuts are expected later in the year, only two reductions are now forecast for 2025, reflecting continued economic uncertainty.

The revision of the growth forecast is expected to fuel debate over Labour’s handling of the economy, with opposition parties questioning whether spending cuts and external pressures will hinder financial recovery.

With the spring statement approaching, the government will need to reassure businesses and the public that it has a clear plan to stabilise the economy while avoiding further financial strain.

THE GUARDIAN

Rachel Reeves faces a tough challenge ahead of her spring statement, with OBR forecasts likely to show her fiscal rules on the brink of being broken. Rising borrowing costs, weak growth, and stubborn inflation have erased her £9.9bn headroom, forcing spending cuts rather than tax hikes. Some economists, including former BoE deputy governor Charlie Bean, argue minor breaches should be tolerated, but Reeves insists her rules are “ironclad” to avoid spooking markets. The Treasury’s focus on whether policies “score” in OBR assessments is shaping decisions, creating tensions within Labour, particularly with Liz Kendall over welfare reforms. The OBR’s influence on policymaking is significant, with critics questioning its rigid approach, though many economists support its oversight. Reeves faces a difficult balance—maintaining credibility, appeasing markets, and navigating Labour’s internal divisions—while dealing with a fragile economy and growing public unease over spending cuts.

SKY NEWS

Rachel Reeves’ spring statement next week is shaping up to be a political minefield as she grapples with a worsening economic outlook. With the Office for Budget Responsibility (OBR) poised to downgrade UK growth forecasts, the chancellor will have little choice but to announce deep spending cuts to keep public finances in check.

Despite promising no return to austerity, Reeves is under pressure as her £9.9bn fiscal headroom has evaporated. Departmental budgets are in the firing line, with ministers asked to find 5% efficiency savings. The opposition is set to exploit the squeeze, branding it “Austerity 2.0.”

Reeves insists the government must “go further and faster” to boost growth through regulatory reform, but the looming cuts threaten Labour’s credibility after its election pledges. As tensions rise, Reeves must balance economic reality with political expectations.