Chancellor confirms spending cuts as OBR trims growth forecasts

(Sharecast News) - The chancellor confirmed cuts to welfare spending on Wednesday while pledging to turn the UK into a "defence industrial superpower", in a spring statement designed to ensure the government's fiscal targets would still be met. Rachel Reeves said her package of measures - designed to cut spending in the short-term while boosting longer-term investment and growth - would see the budget move from a deficit of £36.1bn in 2025/26 to a £6.0bn surplus in 2027/8, rising to £9.9bn by 2030.

It would also restore "in full" the headroom against her "non-negotiable" fiscal rules.

"It is the responsible choice to reduce our level of debt and borrowing in the years ahead, so we can spend more on the priorities of working people," she told MPs.

The Office for Budget Responsibility published its most recent economic forecasts alongside the Spring statement.

It slashed its expectations for growth this year to just 1%, from a forecast for 2% made in October.

However, the OBR upgraded its forecasts from 2026 forwards, in acknowledgement of Labour's plans for growth, including reforms to the planning system.

The fiscal watchdog now expects GDP to grow by 1.9% in 2026, up from an earlier forecast for 1.8%. It is then predicted to dip in 2027 to 1.8% and to 1.7% in 2028, before improving to 1.8% in 2029.

GDP shrunk by 0.1% in January, after growing by just 0.1% in the fourth quarter.

The OBR also forecast inflation would reach 2.8% this year, before falling to 2.1% in 2026 and meeting the Bank of England's 2% target from 2027 onwards.

Inflation data published earlier on Wednesday showed it had unexpectedly shrunk to 2.8% in February.

Reeves said defence spending would be boosted by £2.2bn next year, in recognition of a more "uncertain world".

She continued: "This additional investment is not just about increasing our national security but our economic security too.

"We will put defence at the heart of our modern industrial strategy. That is how we make our country a defence industrial superpower."

Reeves also confirmed widely-flagged changes to welfare spending.

A number of Labour MPs have been vocal in their opposition to the changes, but Reeves argued: "The Labour Party is the party of work. We believe if you can work, you should work. If you can't work you should be properly supported. This government inherited a broken system."

The OBR forecast that the proposed changes would trim £4.8bn off the welfare budget in 2029/30.