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Spring forecast: UK unemployment expected ‘to peak at 5.3%’ as Reeves says her economic plan is ‘right one’ – live updates | Business
UK unemployment to peak at 5.3%, higher than feared, this year
Ouch! The Office for Budget Responsibility has raised its forecast for unemployment, quite significantly.
The OBR new central forecast is that the unemployment rate rises from 4.75% in 2025 to a peak of 5.3% in 2026.
Back in November, unemployment had been expected to hit 4.9%, so this is quite a downgrade.
It has also raised its forecast for unemployment in 2027 to 4.9%, from 4.6% before.
The OBR says:
Labour market weakness still appears to be driven primarily by entrants into the labour force struggling to find work amid subdued hiring demand. We expect this weak demand to continue in the near term as output falls further below the economy’s supply potential.
Looking further ahead, the OBR expects the unemployment rate to fall gradually to 4.1% by 2030/.
Key events
Rachel Reeves isn’t getting any plaudits from the bond market today.
Normally, the news that borrowing is forecast to fall slightly faster than expected in November might have pushed down borrowing costs.
Instead, there’s a bonfire raging in the bond market today, as the Iran conflict and soaring energy prices are spooking investors.
UK bond prices are tumbling, pushing up the yield (interest rate) on 10-year gilts by almost 16 basis points (0.16 percentage points), a very sharp move.
Two-year gilt yields (which track interest rate expectations) are also up 16bps, to 3.79%.
Parts of the OBR’s latest Economic and fiscal outlook will make a reader nostalgic for the time before the Iran war broke out.
In the executive summary for today’s forecast, the watchdog says:
Market expectations for gas prices have fallen by 15 per cent on average over the forecast since November.
Market participants expect Bank Rate to fall from 3.75 per cent to 3.3 per cent by late 2026, which is marginally lower in the near term than in November. Bank Rate is then expected to rise to 4.0 per cent by the end of 2030.
UNFORTUNATELY, gas prices have pretty much doubled since the conflict broke out, while Bank Rate is only expected to drop to 3.5% by the end of this year.
Downgraded growth forecasts and rising unemployment rates ‘not a good headline for government’
Blick Rothenberg, the audit, tax and business advisory firm, says today’s downgraded growth forecasts and higher predicted unemployment rates are “not a good headline for government”
Simon Gleeson, a partner at the firm, said:
“Ultimately growth forecasts have been downgraded, and unemployment rates confirmed to continue to rise is not a good headline for any government.
The Chancellor chose to instead double-down on how her plan was right instead acknowledging it and talking to opportunities for growth.
[Reminder: growth this year is only expected to be 1.1%, down from 1.4% before, before a pick-up from 2027 – see earlier post].
Former chancellor Jeremy Hunt has told Reeves that her promise to cut £150 off energy bills in April will “ring hollow” with many people, given gas prices have surged this week.
Hunt also suggests that it is a mistake to have raised taxes by £66bn at the last two budgets. Couldn’t money for public services be raised by reducing the welfare bill instead?
Reeves pummels Hunt – accusing him of leaving a massive black hole in the public finances, adding it is “a bit rich” for the Conservatives to say we should bring welfare spending down when they presided over a huge increase in welfare spending.
Back in parliament, shadow chancellor Mel Stride has told the chancellor that she has delivered “a surrender statement” not a spring statement.
Stride accuses Rachel Reeves of turning up today “with no plan”, suggesting it may be a cunning way to avoid further u-turns.
And he compares the chancellor to a “dodgy estate agent” standing in a crumbling building without a roof, windows, or a floor, saying “just think of the potential”.
Not the worst line in the world – but cheeky, given the Conservatives were in charge of the house for 14 years before Reeves moved in…..
The Office for Budget Responsibility has also trimmed its inflation forecast this year – however, this was drawn up before the Iran war, so is already out of date.
The OBR now predicts CPI inflation will drop to 2.3% in 2026, down from the 2.5% it forecast in November.
The fiscal watchdog still expected inflation to run at 2% per year from 2027, as before.
It says:
A loosening labour market and falling energy and food price inflation contribute to inflation reaching its 2 per cent target in late 2026.
Chart: UK unemployment to peak higher
UK unemployment to peak at 5.3%, higher than feared, this year
Ouch! The Office for Budget Responsibility has raised its forecast for unemployment, quite significantly.
The OBR new central forecast is that the unemployment rate rises from 4.75% in 2025 to a peak of 5.3% in 2026.
Back in November, unemployment had been expected to hit 4.9%, so this is quite a downgrade.
It has also raised its forecast for unemployment in 2027 to 4.9%, from 4.6% before.
The OBR says:
Labour market weakness still appears to be driven primarily by entrants into the labour force struggling to find work amid subdued hiring demand. We expect this weak demand to continue in the near term as output falls further below the economy’s supply potential.
Looking further ahead, the OBR expects the unemployment rate to fall gradually to 4.1% by 2030/.
OBR: Interim forecast is ‘little changed’ from November.
The Office for Budget Responsibilities new spring forecasts are now out!
The OBR says:
Government debt as a share of GDP has nearly tripled over two decades, borrowing has remained around 5 per cent of GDP for the past four years, and borrowing costs are among the highest of advanced economies.
Against this challenging backdrop this interim forecast update is little changed from November. GDP growth averages 1½ per cent from next year and borrowing falls to around 1½ per cent of GDP in 2030-31, which would stabilise debt around 95 per cent of GDP.
Significant risks, including from conflict in the Middle East, mean outcomes both substantially above and below this forecast are possible.
[that last sentence is an acknowledgement that the world has changed since the OBR finalised its forecasts on 25 February.].
Shadow chancellor Mel Stride is now responding, accusing the chancellor of “complacency”.
Stride accuses Reeves of destroying growth by putting up taxes, dubbing her a “fiscal twister”.
Stride also suggests Reeves was “slightly coy” about the latest forecasts for unemployment, pointing out that joblessness is already at a five-year high.
Reeves concluded her statement by repeating her claim that her plan is “the right one”.
And warning against a change of course, she says the UK must return “a return to austerity”.
We must reject the temptation of easy answers and reckless borrowing to protect family finances and get the cost of living down, and we must reject the political instability which would put at risk all the progress that we have made.
At one stage in her speech, Reeves appeared to channel the UK’s newest MP, Hannah Spencer.
The chancellor told the Commons she believed in a government that stands up for working people, that everyone, no matter where they grow up, deserves security and a fair chance to achieve their potential.
Reeves added:
And that being able to manage the bills, afford a home and pay for a holiday is never too much to ask.
Reeves also revealed that GDP per person is set to grow more than was expected in the autumn, with growth of 5.6% expected over the course of this parliament.
GDP per person, or per capita, is a measure of living standards – it fell in the second half of last year.
Reeves: borrowing down, headroom up.
On borrowing, Reeves says the UK is set to borrow less than the G7 average, something that the Tories never achieved in any year in 14 years.
[Those 14 years included the austerity years, and the cost of the Covid-19 pandemic].
Today’s forecasts show that public sector net borrowing is set to fall from 4.3% of GDP this year to 3.6% next year, then to 2.9%, 2.5% and to 1.8% in the 2029-30 financial year, she explains.
The chancellor then reveals that her headroom against the stability rule in 2029-30 has increased from £21.7bn to £23.6bn.
Headroom against the investment rule is also higher at £27.1bn.
That means she’s still sticking to her goal of sticking to the fiscal rules. In normal times, that would reassure the financial markets…..
Debt is now set to be lower in every year of the forecast compared with the autumn, she adds.
No Labour party speech is complete without a pop at “Liz Truss’s disastrous mini budget”, which crashed the pound three and a half years ago.
Reeves says that 2022 fiscal event was cheered on by the leader of the opposition and by “the honorable member for Clacton” (Nigel Farage), who she calls out for not being present.
Rachel Reeves then pokes the “failed economic dogmas of the past”, such as the “trickle down, trickle out thinking” that she says has produced diminishing returns for working people.
Reeves then explains that she will outline three major choices for the UK economy in two weeks time when she delivers the Mais Lecture in London.
Those choices, she says, are:
To go further in strengthening global relationships, break down trade barriers and deepen alliances with European partners
To go further in backing innovation and harnessing the power of AI.
And to go further in transforming our economic geography so that we can build growth on a broad and stable basis, spread opportunity and unlock opportunity across the country.
Reeves: We can beat the forecasts again
In what may be a hostage to fortune, the chancellor declares that “in the face of global uncertainty, we beat the forecasts last year.”
Reeves insists she has confidence that the government can beat forecasts again, as more of the choices made by the government will come into effect.
She cites discounts on energy costs, trade deals with India, the US and the EU, and reforms to back entrepreneurs, investment in infrastructure and skills, funding for further education and more planning reforms.
