The Office for Budget Responsibility’s latest forecast shows falling inflation and borrowing, but growth forecasts have been revised downward amid wider economic uncertainties.
The Office for Budget Responsibility has published its full supporting documents for the Spring 2026 Economic and Fiscal Outlook, providing detailed analysis of the UK economy’s current trajectory and medium-term prospects. The forecast, released on 3 March 2026, paints a mixed picture of economic progress tempered by emerging challenges.
According to the OBR’s analysis, the government’s economic plan is delivering tangible results in some areas. The forecast shows inflation falling towards the Bank of England’s 2 per cent target, with inflation now expected to return to target in the second half of 2026—earlier than previously forecast. Borrowing has also improved markedly, with public sector net borrowing down nearly £18 billion compared to the Autumn 2025 forecast, and headroom against the fiscal stability rule increasing to almost £24 billion.
The Treasury has highlighted that households should experience meaningful relief from cost-of-living pressures. The OBR forecasts that people will be over £1,000 per year better off after accounting for inflation by the end of the current Parliament. This figure reflects the cumulative impact of government policies, including the £150 reduction in energy bills and the freezing of rail fares announced at previous fiscal events. The OBR specifically estimates these measures will reduce inflation by 0.3 percentage points in 2026, directly easing pressure on household budgets.
However, the economic outlook contains significant caveats. The OBR has revised downward its forecast for real GDP growth, with 2026 growth now expected at 1.1 per cent, compared to the 1.4 per cent previously forecast. This reflects weaker medium-term productivity growth, which the OBR has revised down by 0.3 percentage points to 1.0 per cent. The forecasting body identified that productivity growth—the amount of economic output generated per worker—remains a critical vulnerability in the UK economy’s long-term trajectory.
Despite this slowdown, the OBR maintains that GDP per capita is set to grow 5.6 per cent over the remainder of the current Parliament. This measure of growth per person is considered a more meaningful indicator of living standards than total GDP growth, as it accounts for population changes. The Treasury emphasised that Britain’s economy remains stronger than most comparable peers, with growth outpacing other European G7 nations during 2025.
The fiscal picture shows gradual improvement. Public sector net borrowing is forecast to fall from 5.2 per cent of GDP (£153 billion) in 2024-25 to 4.3 per cent of GDP (£133 billion) in 2025-26, declining further to 1.6 per cent of GDP (£59 billion) by 2030-31. The primary balance—the difference between government tax revenue and spending before accounting for debt interest—is projected to move from a deficit of approximately 2.25 per cent of GDP to a surplus of around 1.25 per cent by the end of the forecast period.
The OBR notes that this improvement is driven primarily by an increase in tax revenue as a share of GDP, partly attributable to frozen personal income tax thresholds, which means inflation pushes more people into higher tax bands without threshold increases. This fiscal drag—where taxpayers pay more tax without policy changes—generates approximately £16 billion in additional revenue by 2029-30 relative to the March 2025 forecast.
The outlook acknowledges significant uncertainties. The OBR estimates a 59 per cent probability of meeting the government’s current budget fiscal mandate by 2029-30, up from 54 per cent in its March 2025 forecast. The margin of safety built into the forecast—approximately £22 billion—is described as modest compared to historical average forecast revisions of around £54 billion in the fourth year ahead.
Key risks identified include productivity growth, interest rates, equity prices, and earnings growth. The OBR’s analysis shows that wage growth is expected to slow from recent elevated levels to around 3.5 per cent in 2026 and average 2.25 per cent annually thereafter, broadly in line with inflation and productivity growth. This moderation reflects expected loosening in labour market conditions as economic growth slows.
Nominal weekly wage growth projections and broader labour market dynamics carry particular importance for understanding household finances. The downward revision to growth forecasts suggests the labour market will gradually soften, potentially affecting employment prospects and wage bargaining power for workers.
The supporting documents released by the OBR run to hundreds of pages, providing granular analysis of sectoral trends, regional economic performance, and sensitivity analysis showing how the forecasts would change under different assumptions about key variables.
Source: @OBR_UK
Key Takeaways
- The Office for Budget Responsibility forecasts inflation returning to target in the second half of 2026, with households over £1,000 better off annually by end of Parliament after accounting for inflation
- Public sector borrowing is falling significantly, down £18 billion versus the Autumn forecast, with improved headroom against fiscal rules
- Real GDP growth has been revised downward to 1.1 per cent for 2026, reflecting weaker productivity growth and tighter labour market conditions ahead
What This Means for Kent Residents
For Kent households and workers, the OBR’s outlook suggests tentative improvement in purchasing power through lower inflation, though wage growth is expected to moderate as economic growth slows. The improved fiscal position may create space for future investment in public services and infrastructure, potentially benefiting Kent’s economy through improved transport links and local services. However, the downward revision to growth forecasts and labour market softening should be monitored, particularly for workers in sectors sensitive to consumer spending. The outlook underscores the importance of sustained focus on productivity improvements—an area where regional economic development initiatives could play a crucial role in securing long-term prosperity for Kent residents.
