The Spring Statement is meant to be a low-key update on the OBR’s forecasts. However, the UK’s worsening economic outlook forced Chancellor Rachel Reeves into taking more decisive action.

The groundwork for this was laid during the much-scrutinised October Budget when the Chancellor introduced new “non-negotiable” fiscal rules, including a stability rule that requires day-to-day spending to be matched by revenues by 2029-30. The Budget also left just £9.9 billion in fiscal headroom – a narrow buffer to avoid breaching the rules.

In the opening parts of her statement, the Chancellor was forced to admit that this headroom has now disappeared, and that her fiscal rule was on course to be missed by £4.1 billion; a deterioration in public finances of £14 billion since the Budget, driven by weaker-than-expected economic growth (the OBR has downgraded its 2025 growth forecast from 2% to 1%), lower tax receipts, and increased debt servicing costs.

Acknowledging the gravity of the situation, the Chancellor highlighted that “the world is changing before our eyes”. Like many international counterparts, the UK has been impacted by the Trump administration, a global rise in borrowing costs, and sticky inflation. However, the Government must also take some responsibility for its current predicament, where decisions in the Autumn Budget rattled the markets.

As the Chancellor spoke, it quickly became clear that this was not a Spring Statement focused on appeasing Labour MPs or even voters, but instead the markets, private sector and investors. Aspects of it will jar with some party members (particularly around welfare reforms), and the decisions taken are not those that any Labour Chancellor would ideally like to announce. Its aim was to reassure financial audiences that the Government was committed to taking the necessary action to deliver its plan for growth without breaking its fiscal rules.

For starters, this was not an emergency budget – there were no tax increases or additional borrowing announced (we will have to wait for anything on this in the autumn). Instead the Chancellor announced that she had restored the fiscal headroom through measures including plans to raise over £1 billion from tackling tax evasion; save £3.4 billion through welfare cuts; switch significant swathes of the overseas aid budget to defence spending; execute £2 billion of government efficiency cuts; and reduce day-to-day spending by £6.1 billion by 2029-30.

The Chancellor also hoped to boost the mood through several announcements including upgraded growth forecasts for the economy from next year through to 2029, a £3.25 billion transformation fund to reform public services through AI and technology, and a commitment to increasing capital spending by £2 billion per year compared to previous plans. Naturally, you can see how this would appeal to the markets, although it is up in the air how a growing set of disgruntled Labour MPs will react, with increasing concern within the party over where the savings are coming from (e.g. welfare cuts and the budgets of non-protected departments). 

Arguments from some that the Chancellor is turning towards austerity are overblown, particularly when taking into account the major public spending commitments made at the previous Budget. However, unless the economic picture changes, the Chancellor’s hand may be forced to wield the axe again in the autumn.

A lot now rides on the upcoming Comprehensive Spending Review and the publication of plans like the Industrial Strategy and 10 Year Infrastructure Strategy to convince the markets that this government can turn around an anaemic economy, attract inward investment and boost growth.

Yet, despite all this work by the Chancellor and her team to reset expectations, this could all quickly be blown off course by the looming deadline of the 2nd April, dubbed ‘Liberation Day’ by President Trump. The extent to which the UK will be directly exposed to the incoming reciprocal tariffs from the USA is still unknown, with mixed messages coming out of the White House.

Assuming that the UK is able to emerge relatively unscathed next week, the Chancellor will be hoping that today is a turnaround moment that secures her reputation as the right steward to bring “stability” to the UK economy and puts the Government back on track in the pursuit of growth. If this doesn’t start to materialise, then, come the next Budget, the pressure that she is already facing could reach boiling point, and her fiscal rules may not be the only thing members of her party start calling for to be dropped.