Office for Budget Responsibility forecasts people will be £1,000 better off as economy grows despite global uncertainty.
The Office for Budget Responsibility has published its latest Economic and Fiscal Outlook, revealing an improved picture for Britain’s economy with inflation falling faster than expected, borrowing falling by nearly £18 billion since the Autumn forecast, and households set to benefit from increased living standards over the coming years.
The Chancellor highlighted that the Spring Forecast demonstrates the government’s economic plan is working, with inflation now expected to return to the Bank of England’s 2 per cent target in the latter half of this year—sooner than previously forecast in November. The independent forecaster projects that household living standards will improve substantially, with people forecast to be over £1,000 a year better off after accounting for inflation by the end of the parliamentary term.
Borrowing is now projected to fall from 5.2 per cent of gross domestic product (GDP) in 2024-25 to 4.3 per cent in the current year, and gradually declining to 1.6 per cent of GDP by 2030-31. In cash terms, public sector net borrowing is forecast to drop from £153 billion to £133 billion this year. The Office for Budget Responsibility has also increased the headroom available against the government’s fiscal stability rule to almost £24 billion, providing greater flexibility to respond to economic shocks.
The Path to Lower Inflation
The improvement in inflation prospects reflects a combination of factors. Energy and food price inflation are falling, whilst the labour market is loosening, which helps ease wage pressures. The OBR specifically credits government policies—including the £150 reduction in energy bills and the freeze on rail fares announced at the last Budget—with bringing inflation down by 0.4 percentage points in 2026-27.
However, the forecast suggests a more complex inflation picture than initially expected. The OBR has revised upward its forecast for wage growth and consumer price inflation in 2026, with wage settlement expectations holding up more strongly than anticipated and signs of greater momentum in domestically generated inflation. Nominal weekly wage growth is now expected to slow to around 3.5 per cent in 2026 before averaging 2.25 per cent annually as the labour market continues to loosen.
Economic Growth Outlook
Despite global uncertainty and geopolitical challenges, the OBR forecasts that Britain’s economy will grow more robustly than other major European economies. GDP per person is set to grow by 5.6 per cent over the parliamentary term, outperforming expectations set at the Budget. The forecast projects real GDP growth at around 1.5 per cent over the medium term, though this represents a downward revision from previous expectations due to weaker productivity growth.
The OBR has revised down its central forecast for underlying medium-term productivity growth to 1.0 per cent annually, reflecting historical trends and analysis of potential drivers of productivity. Real GDP growth expectations for 2026 have fallen from 1.4 per cent to 1.1 per cent, whilst unemployment is forecast to rise gradually as the labour market continues to soften.
Public Finances and Fiscal Consolidation
The composition of economic growth is becoming increasingly important for the public finances. The OBR forecasts that nominal GDP growth will be “more tax rich” than previously expected, mainly because a larger share of growth is accruing to labour income and consumption rather than corporate profits. This, combined with the government’s frozen personal tax thresholds, is forecast to boost tax receipts by amounts rising to £16 billion by 2029-30 compared to the March projection.
The current budget deficit—the difference between day-to-day government spending and revenue—is projected to move from a deficit of 1.6 per cent of GDP this year to a surplus of 0.7-0.8 per cent of GDP by 2029-30. Around three-quarters of the planned reduction in borrowing over the next five years will come from tax increases, compared with two-thirds in the Autumn Budget 2024.
The Office for Budget Responsibility has cautioned that the margin against the fiscal stability rule remains relatively small compared to historical uncertainties around productivity, interest rates, equity prices, and earnings growth. The margin of headroom in 2029-30 stands at £22 billion—significantly smaller than the average £54 billion difference between OBR forecasts and actual borrowing outcomes four years ahead.
Key Takeaways
- Inflation now expected to reach the Bank of England’s 2 per cent target by late 2026, with government energy and rail policies contributing a 0.4 percentage point reduction
- Public sector net borrowing forecast to fall from 5.2 per cent of GDP to 4.3 per cent this year, with headroom against fiscal rules increased to almost £24 billion
- Household living standards set to improve by over £1,000 annually after inflation, with real GDP growth of 1.5 per cent forecast over the medium term
- Nominal wage growth expected to slow to 3.5 per cent in 2026 before moderating to 2.25 per cent annually as labour market loosens
- Productivity growth revised downward to 1.0 per cent per year, reflecting historical trends and structural challenges
What This Means for Kent Residents
For Kent households, the Spring Forecast offers some relief on the immediate cost-of-living front, with inflation falling faster than anticipated and bill reductions helping to ease household budgets. The improvement in living standards projections is particularly significant for working families across Kent, many of whom have faced sustained pressure on wages in recent years. However, the slower real GDP growth forecast and rising unemployment projections suggest the jobs market will gradually soften, which could affect employment opportunities across Kent’s diverse economy. For those relying on investment income or pension funds, the OBR’s projection of higher equity prices over the forecast period offers some modest encouragement. Residents should also be aware that much of the borrowing reduction will come from tax increases rather than spending cuts, which may affect household finances in other ways. The stabilisation of debt around 94.5 per cent of GDP provides some reassurance about the government’s long-term fiscal position, though Kent residents—like all Britons—remain exposed to global economic risks and uncertainties.
Source: @OBR_UK
