Chancellor backs economic plan despite growth downgrade
By Abigail Townsend
Date: Tuesday 03 Mar 2026
(Sharecast News) - Chancellor Rachel Reeves insisted on Tuesday that her economic plans were working, despite the government's financial watchdog trimming its growth forecast for 2026.
The Office for Budget Responsibility has adjusted the profile of GDP, and now expects growth of 1.1% in 2026, down from the 1.4% it predicted in November. However, the growth forecast for 2027 and 2028 was lifted to 1.6% in both years, from 1.5%.
Presenting her Spring statement to a packed House of Commons, Reeves told MPs: "This government has the right economic plan for this country.
"A plan that is even more important in a world that in the last few days has become even more uncertain."
She flagged recent significant increases to defence spending and confirmed that in light of the outbreak of war in the Middle East, she was in "regular" contact with the governor of the Bank of England. Reeves also said she would meet North Sea leaders on Wednesday to discuss the unfolding crisis.
But she insisted: "I am in no doubt about Britain's ability to navigate the challenges in place.
"Today's forecasts from the OBR show that our plan is the right one - inflation is down, borrowing is down, living standards are up and the economy is growing. This government has restored economic stability."
She also confirmed that the OBR now expects inflation to come down faster than forecast in the autumn because of "action I took at the Budget".
The so-called fiscal headroom she had built in has also grown since November, to £23.6bn from £21.7bn.
In contrast, unemployment was forecast to peak at 5.3% this year, higher than the 4.9% previously predicted by the OBR.
However, all the OBR's forecasts were prepared ahead of Donald Trump launching attacks on Iran over the weekend. Oil and gas prices have soared in response, which in turn has prompted gilt yields to rise as investors scale back interest rate expectations.
The OBR warned that there were "significant risks" around its Spring forecast, with "plausible outcomes both substantially above and below the central projection".
It continued: "Conflict in the Middle East, which escalated as we were finalising this document, could have very significant impacts on the global and UK economies.
"In addition, trade policy developments, the evolution of productivity growth and the labour market, and changes in equity prices and interest rates are key risks within the economy forecast."
Emma Wall, chief investment strategist at Hargreaves Lansdown, said: "The chancellor was keen to stress the higher growth, lower inflation outlook for the UK. But markets are listening less to what is happening in the House of Commons and more on the war in the Middle East.
"The market is now struggling to price in even a quarter point cut from the Monetary Policy Committee. We think this is overly pessimistic but understand the caution."
Neil Wilson, UK investor strategist at Saxo Markets, called the statement "reasonably positive sounding" but warned it could "potentially all go out the window if we get a repeat of the 2022 energy crisis, particularly the inflation forecasts. And if the BoE can't cut this month, then assumptions will need to be torn up".
No new policies were announced in the statement, in line with expectations. The government is seeking to restrict major economic and financial announcements to the autumn Budget.
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