Reeves to address grim economic outlook as she faces budget watchdog’s verdict

Rachel Reeves will acknowledge she needs to go “further and faster to kickstart growth”, amid dour predictions about her cost-cutting measures and as she scrambles for savings to help balance the nation’s books without hiking taxes.

The Chancellor will be forced to take action to stick to her rule of meeting day-to-day spending through tax receipts, rather than extra borrowing, in response to gloomy forecasts from the budget watchdog.

The Office for Budget Responsibility (OBR) is widely expected to slash its forecast for economic growth, following similar recent revisions by the Bank of England and the Organisation for Economic Co-operation and Development (OECD).

And the watchdog is said to have warned that cuts to welfare set out in recent weeks have fallen short of the £5 billion savings ministers expected, according to media reports, leaving the Chancellor with a £1.6 billion hole likely to be filled with further cuts.

The Government has also borrowed more than previously expected, with the cost of those loans rising – in part due to global turbulence.

In her spring statement, the Chancellor will tell MPs that a “more insecure world” requires a greater focus on national security, with a promise to increase defence spending by £2.2 billion from April as part of the previously announced plan for the biggest boost in military funding since the Cold War.

She will say: “This moment demands an active government stepping up to secure Britain’s future. A government on the side of working people.

“To grasp the opportunities that we now have and help Britain reach its full potential, we need to go further and faster to kickstart growth, protect national security and make people better off through our plan for change.”

Ms Reeves will tell MPs she is “proud” of her record in office – despite the sluggish economic growth figures which have heaped pressure on her.

In its October forecast, the OBR expected gross domestic product – a measure of the economy’s size – to grow by 2% in 2025 and 1.8% in 2026 but that is widely expected to be downgraded.

The Bank of England halved its growth forecast for the UK economy in 2025 to 0.75% in February, and earlier this month the OECD cut its 2025 forecast from 1.7% to 1.4%.

Lower-than-expected growth will lead to smaller tax receipts than had previously been budgeted for.

The latest official borrowing figures, for February, were £4.2 billion higher than had been forecast by the OBR.

Ms Reeves’ self-imposed rule to meet day-to-day spending at the end of the five-year forecast through receipts rather than borrowing was forecast to be met with £9.9 billion of headroom to spare in the OBR’s October assessment.

But the lack of growth and the increased cost of borrowing will eat into that headroom, forcing the Chancellor to take action to ensure she continues to meet the rule – which is designed to show that Labour can be trusted with the public finances.

Ahead of the statement, the Chancellor has:

– Said the UK has “not been immune” from “increases globally in the cost of government borrowing”.

– Insisted that “economic stability is non-negotiable” and she will “never play fast and loose with the public finances”.

– Promised that she would not use the spring statement to raise taxes.

– Confirmed plans to tell Whitehall departments to cut administrative budgets by 15%, expected to save £2.2 billion a year by 2029-30.

– Announced £2 billion of funding for social and affordable homes in England.

– Promised to train tens of thousands of construction workers to help deliver the promised 1.5 million new homes in England before the next election.

Alongside the statement, the Government will release an impact assessment indicating how many people will be hit by previously announced plans to cut £5 billion off the welfare bill.

Here the Chancellor is also likely to face a headache, with several media outlets reporting that the OBR will say the benefits reforms will save only £3.4 billion, leaving Ms Reeves with an unexpected £1.6 billion shortfall.

She and Work and Pensions Secretary Liz Kendall are now expected to make further cuts to the basic rate on universal credit from 2029 and by freezing incapacity benefits.

A group of public health experts writing in the British Medical Journal warned people will die as a result of the cuts to personal independence payments and the sickness elements of universal credit.

Professor Gerry McCartney, from the University of Glasgow, said: “There is now substantial evidence that cuts to social security since 2010 have fundamentally harmed the health of the UK population.

“Implementing yet more cuts will therefore result in more premature deaths. It is vital that the UK Government understands this evidence and takes a different policy approach.”

Prime Minister Sir Keir Starmer has insisted the welfare system is “morally indefensible” and needs reform to help those who can work into jobs.

Shadow chancellor Mel Stride said: “Our national security demands a strong economy.

“Yet since Rachel Reeves’ first budget, growth is down, borrowing is up and business confidence has been destroyed.”