Spring forecast: Reeves insists Labour has ‘right economic plan’ as 2026 growth downgraded

Unemployment predicted to continue rising to 5.3% as chancellor says she is meeting energy firms amid soaring oil and gas prices

Rachel Reeves insisted Labour has “the right economic plan” for a world that has become “yet more uncertain” as she delivered a spring forecast that downgraded growth for this year.

The chancellor was addressing MPs against the backdrop of surging energy prices, as investors fret about the impact of the war in the Middle East. The cost of a barrel of Brent crude was up another 7% on Tuesday, at $83.20.

Reeves said she was in close touch with the Bank of England governor, Andrew Bailey, as they monitored the situation and would meet representatives of the North Sea energy industry on Wednesday.

New forecasts from the independent Office for Budget Responsibility (OBR), published alongside her statement, showed that as Reeves said, “inflation is down, borrowing is down, living standards are up and the economy is growing”.

“This government has restored economic stability,” she said, in a deliberately low-key statement that, as expected, contained no substantive policy announcements.

Reeves conceded that GDP growth was now expected to be “slightly slower” this year, however, down to 1.1% from the previous forecast of 1.4%, after weaker than expected data in the final quarter of 2025 – but stronger in future years, at 1.6% in 2027 and 2028, and unchanged at 1.5% in 2029 and 2020.

The OBR also predicts that the unemployment rate, already almost at a five-year high, will continue rising, to a peak of 5.3% this year – up from a previous estimate of 4.9%.

The forecaster said this had been “driven primarily by entrants into the labour force struggling to find work amid subdued hiring demand”.

Reeves emphasised that unemployment was then expected to decline, to 4.1% by the end of the forecast period: lower than when Labour came to power.

The OBR said it had revised down its near-term growth forecast partly as a result of weaker-than-expected net migration, but it had not yet taken into account the tough new policies recently announced by the home secretary, Shabana Mahmood, including making refugee status temporary.

Despite instructing the OBR not to judge her against her fiscal rules at this spring forecast, Reeves emphasised that her buffer – or “headroom” – had increased in its latest projections, to £23.6bn from £21.7bn at the time of the November budget.

This improvement has been aided by lower gilt yields, or borrowing costs, though these have been rising again in recent days as investors bet on resurgent inflation.

As the Middle East conflict deepens, the chancellor promised she would “chart a course through that uncertainty, secure our economy against shocks, and protect families from the uncertainty we see beyond our borders”. She added: “I am in no doubt about Britain’s ability to navigate the challenges we face.”

Analysts have said that if the price rise proves sustained, it will have a knock-on effect for petrol prices and for household utility bills, which Reeves has promised to cut.

Markets have also been revising down expectations for more interest rate cuts in the coming months, as more costly energy will complicate the Bank of England’s task in tackling inflation.

The shadow chancellor, Mel Stride, responding to Reeves’s statement in the House of Commons, accused her of “utter complacency”.

“She is rather like the dodgy estate agent standing in the crumbling building with a roof gone, the windows gone, with the floor gone and saying ‘just think of the potential’,” he said.

Reeves insisted the unstable global situation meant the actions she had taken on inflation, including shifting green levies to general taxation and freezing bus fares and prescription charges, were “even more crucial”.

And she hailed other recent Labour decisions, including removing the two-child cap on benefits, and funding 30 hours a week of free childcare.

Reeves promised to take more action on youth unemployment and inactivity in the weeks ahead, blaming her Conservative predecessors. “Young people, in particular, are still suffering from the aftermath of years of Tory mismanagement in the last five years of the previous government,” she said.