Spring forecast will show value of stability — long may it last

An underreported run-in to this latest Forecast is in sharp contrast to last March when weeks of speculation on accompanying tax and spending changes sucked the wind from the sails of the UK economy. It was a pattern that then repeated ahead of the Autumn Budget.

The UK’s Chancellor, Rachel Reeves, deserves credit for following through with her promise to de-emphasise this year’s Spring Forecast. There will be no new policy measures for UK businesses to absorb. It reveals that Reeves is learning valuable lessons on the job. The last thing the UK economy needs right now is more tinkering, more uncertainty, more distractions. Economic data is now stacking up that reveals that periods of stability create their own reward. UK economic data has been on an improving trend since last November’s Budget.

The UK’s Purchasing Managers Index (PMI) - an important monthly reading that details the health of the private sector - recently rebounded to its highest level in almost two years. UK retail sales are now growing at an annual rate of 4.5%. This is a pace last seen in early 2022. Consumers are still facing rising prices, but the pace has slowed in important categories such as food and fuel. Financial markets are expecting two more interest rate cuts from the Bank of England by mid-summer. These cuts are now more likely because of decisions taken by Reeves at the November Budget. This is in contrast to the decisions made at the 2024 Budget - specifically the large rise in employer National Insurance contributions - that generated higher UK inflation during 2025.

Taken together these data and decisions have created a brief window of stability. Long may it last. Periods of stability provide businesses the confidence to invest, consumers the appetite to spend, and investors the urge to commit capital. Stability is further enhanced if the media is starved of highly speculative content about government economic policy - particularly on tax. After Brexit, COVID-19, the Mini Budget, the Ukraine War, and the flux of a second Trump administration, the UK economy shows all the characteristics of being punch drunk. An extended count in its corner to catch its breath is required. The commitment by Treasury ministers not to announce new policies at the Spring Forecast, and a doubling of the financial headroom against the Chancellor’s self-imposed fiscal rules at the last Budget have both added to the calmer backdrop.

This is not to say the Spring Forecast will be entirely uneventful. The OBR will have to consider what has changed since November. These changes will sit in two broad categories.

Firstly, there are policy changes that have been announced in the last three months that need costing. These include a new commitment from central government to cover £5bn of Special Educational Needs and Disabilities (SEND) debts built up by local councils, the pared-back Employment Rights Act - now expected to cost employers £1bn, and the cost of higher business rate relief for UK pubs. Whilst these have generated big political headlines, the impact is relatively modest in public finance terms.

Secondly, there has been an ever changing macroeconomic backdrop since November. The OBR will assess how recent good news on inflation should be set against a more downbeat jobs market. It must appraise whether the recent spike in oil prices - on fears of a renewed US attack on Iran - will prove persistent. The OBR also needs to judge whether the bumper tax receipts recorded in January 2026 - that generated a record surplus - will be repeated, or whether they represent a one-off reaction to feverish speculation about changes to tax on capital and business assets.

And it is this distortion of behaviour - and the evidence of a positive reaction to relative stability - that will enable Reeves to also send a message to her own backbenchers, perhaps even quite explicitly, of the risks of renewed political disruption.

Investors I speak to at present are quietly encouraged by a UK economy throwing off better data, a stock market at an all-time high, and the Pound trading close to its highest level for a decade. But anxiety is rising on what happens next, perhaps as early as this week’s Gorton and Denton by-election – but certainly after the local elections in May. The risk of a Labour leadership challenge, a pivot to the left, an emergency Budget, and accusations of democratic legitimacy all cloud the horizon.

As leadership speculation piqued earlier this month with the comments of Scottish Labour leader, Anas Sarwar, the cost of UK government borrowing moved higher compared to benchmark interest rates in Europe, and the US. This was investors sending signals that they expect more borrowing, more inflation, and lower growth under some of the main Labour leadership protagnonists. Sarwar’s comments didn’t trigger a leadership challenge, but they did bring the prospect to the forefront of investors minds. Even if a relatively centrist candidate were to emerge from the Labour pack, the flux and uncertainty would make the likelihood of the UK exceeding consensus growth forecasts for the fifth year in a row even harder.

None of this is to pretend that the business community is delighted with what Labour have offered over the last two years. Aware of the need for a growth plan reset, Reeves is planning a post-Forecast speech that updates the thinking that underpinned her 2024 Mais lecture. It will reveal what she has learnt in office, and recognition that the global economy has changed markedly over the last two years. Some of the luxury economic beliefs that Labour held dear in opposition have proved flawed in government.

There has been higher UK inflation resulting from tax and spending decisions, the government continues to preside over an energy policy which attracts sympathy, rather than envy, from our economic peers, and the government’s labour market reforms have triggered a spike in youth unemployment. Ongoing frictions to getting approval for construction works across the UK housebuilding and infrastructure sectors result in higher costs, and lower growth.

UK businesses and investors are judging that all these impediments simply get worse by another bout of UK politicians turning in on themselves. The Spring Forecast is a chance for the Chancellor to convince her own party that an extended period of stability trumps a summer of discontent. Let us hope her colleagues are listening.