Rachel Reeves delivers spring statement on the economy — but the war in Iran casts a long shadow

Today, 3 March, chancellor Rachel Reeves delivered her ‘spring statement’ on the progress of the UK’s finances. With clear pride, she spoke about growing the country’s economy following her autumn budget.

However, according to the Office for Budget Responsibility’s (OBR) accompanying report, the outlook is somewhat mixed.

Mixed outlook

Notably, the OBR collated its findings before the US and Israel mounted their illegal attack on Iran. This is already having a massive impact on the UK’s energy prices, among other knock-on costs.

For what it’s now worth, the government spending watchdog reported that:

• The government’s fiscal headroom — the emergency fund for economic shocks, like a sudden war in Iran — has increased to £23.6bn from £21.7bn.
• The economy should grow by 1.1% in 2026. That’s down from November’s original 1.4% forecast.
• However, inflation will likely fall faster than predicted, dropping past 2.3% over 2026. By the end of the year, it should reach as low as the Bank of England’s 2% target.
• Unemployment is predicted to reach 5.3%. That’s a hike from the previous 4.9% peak forecast.

The OBR stated that there are “significant risks” around its forecast, and added that:

Conflict in the Middle East, which escalated as we were finalising this document, could have very significant impacts on the global and UK economies.

Rachel Reeves — ‘The right economic plan’

Before the statement itself, the chancellor indicated that three major issues would “determine the course of our economy”. These, she claimed, were overcoming trade barriers, improving global relationships, and harnessing AI.

Reeves began her address to the Commons with that claim that:

This government has the right economic plan for our country.

She went on to state that the Bank of England indicated that inflation should fall faster because of

action that I took at the Budget.

The claims around inflation here are somewhat… flexible.. with the truth. The most recent figures showed 3% inflation in January, down from December 2025’s 3.4%. However, that’s still up from 2% in June 2024, immediately before Labour came to power.

Rachel Reeves — ‘Largely unchanged’

Rachel Reeves also dismissed the OBR’s downgrade of the growth forecast as “largely unchanged”:

The OBR has adjusted the profile of GDP so that it grows slightly slower in 2026, and faster in 2027 and 2028.

On that note, the spending watchdog’s long-term predictions do look fairly positive. Growth should rise to 1.6% in 2027 and 2028, and then dip slightly to 1.5% in 2029 and 2030.

This led the chancellor to claim that:

By the next election, after accounting for inflation, people are forecast to be £1000 better off per year.

Unfortunately, as the BBC explained:

She’s talking about a measure called Real Household Disposable Income (RHDI) per person. The Office for Budget Responsibility said today, external that measure had grown strongly in 2024-5 (broadly the first year after the general election). It has grew by 3.1%.

In 2025-26, RHDI per person is expected to grow by much less — only 0.1% — and then average 0.5% growth a year until 2029, when the next election is likely to happen.

The OBR says RHDI per person was £25,500 in 2023-24 and it does indeed predict that it will be a bit more than £1000 higher than that by the time of the next election, but you’ve already had most of that increase.

Objections from the opposition(s)

The chancellor wrapped up by voicing confidence that the UK can “navigate the challenges we face”:

The plan that I have been driving forward since the election is the right one: stability in our public finances, investment in our infrastructure and reform to Britain’s economy.

However, the other parties in the Commons were predictably less enamoured with Reeves patting her own back. The Lib Dems’ Daisy Cooper, citing Trump’s war on Iran, pushed for:

put a laser-like focus on getting a better trade and defence deal with Europe.

Meanwhile, Reform’s Robert Jenrick likened Reeves to a:

rogue landlord who keeps squeezing the tenant with higher and higher rent. All the while, the property is going to wrack and ruin.

As a reminder, Jenrick was a Conservative MP under the Liz Truss government, which nearly crashed the economy completely.

Lastly, Tory shadow chancellor Mel Stride called the address “not a Spring Statement” but a “surrender statement”. He pointed out that government borrowing is up (true), and also claimed the UK’s youth unemployment rate is:

the highest in Europe for the first time in a quarter of a century.

According to the latest figures from the Organisation for Economic Co-operation and Development (OECD), this is false. In fact, 13 EU countries had higher youth unemployment rates last year alone.

Rather, the UK’s youth unemployment rate was 15.3% in summer 2025. This was 0.1% above the EU average of 15.2%. Simple mistakes like this are likely why Stride is safer as the shadow chancellor than in a job where he actually has any power.

Overall, Reeves’ speech was self-congratulating, and optimistic in a manner than was mildly at odds with the OBR’s forecast itself. However, with the shadow of Trump and Israel’s war with Iran looming, any predictions now come with extremely heavy caveats.

Featured image via the Canary