On 3 March, Rachel Reeves will respond to updated economic and fiscal forecasts from the Office for Budget Responsibility (OBR). With limited economic developments since the autumn, and with the Chancellor having pledged to avoid policy measures unless there is a significant downturn, the widespread expectation is that it will be a low-key affair, without major policy announcements. Following the furious speculation and heightened uncertainty in the lead-up to the last few fiscal events, this period of relative calm is extremely welcome.
The Spring Forecast is perhaps best thought of as setting the scene for a potentially consequential Budget in the autumn. Recent out-turn data in two areas – migration and tax revenues – highlight risks which are unlikely to crystallise into a major problem at the Chancellor’s Spring Forecast, but which could create considerable fiscal challenges later in the year.
- In the case of migration: the latest data show net migration significantly below the OBR’s forecast for 2025. Previous OBR estimates suggest that a permanent drop in net migration of 100,000 per year could increase its borrowing forecast by around £10 billion per year in the medium term.
- In the case of tax revenues: the OBR’s November 2025 forecast projected that persistent inflation and real wage growth would push up tax revenue by £25 billion in 2029–30, through higher consumer expenditure and more ‘tax-rich’ GDP growth. However, despite higher-than-expected inflation and wage growth, tax receipts over 2025 were somewhat subdued – though the most recent data, for January 2026, show signs of an uptick.
In each case, the OBR will likely wait for more data before making material adjustments to its forecast, just a few short months on from the last one. But each issue has the potential to put a dent in the forecast for tax revenues at some point in future – including when performance against the fiscal rules is formally assessed again this autumn – and these will be important areas for discussion in the OBR’s analysis.
Nick Ridpath, Research Economist at IFS and an author of the analysis, said:
‘The Chancellor looks set to follow through on her commitment to hold only one fiscal event per year, which means next week’s Spring Forecast is unlikely to contain any big policy surprises. However, a new forecast from the OBR may shine a light on emerging risks to the medium-term borrowing outlook. A sharp decline in net migration has the potential to reduce future tax revenues. The OBR will likely wait for more data before updating its medium-term outlook, but if recent trends do continue, the Chancellor’s fiscal rules could come back into focus by the Autumn Budget.’
