After much speculation, Chancellor Rachel Reeves has delivered her Spring Statement to Parliament. The statement followed some rather welcome news for the Chancellor earlier in the day, that the rate of UK inflation had fallen for the year to the end of February to 2.8%.
However, Reeves hasn’t exactly been awash with good news otherwise, in her quest to deliver economic growth. With global economic uncertainty, UK growth remaining sluggish, higher than expected borrowing and the fiscal headroom she thought she might have last Autumn now being cut, cuts to government departments – particularly the welfare budget already subject to sweeping cuts already announced – were firmly on the agenda. It’s a very challenging time for the economy that’s for sure. Before the announcement, Reeves had said that she would not be raising or lowering taxes in the Spring Statement.
Investment strategists will have had their eyes firmly fixed on the independent forecasters, the OBR’s report also being released today. The OBR had previously been forecasting growth expectations for the UK of 2% – the figures are now downgraded – halved for the current year to 1%. There will also be much interest in the details about government public spending plans and how that might impact the all important bond markets. After the Liz Truss debacle a few years back, they certainly won’t want to unsettle the gilt market.
Strategists, economists and other experts have been sharing their reaction to what Chancellor Reeves had to say in her Spring Statement as follows:
Lindsay James, investment strategist at Quilter said:
“Today’s Spring Statement confirmed what has long been known about the UK economy – growth is weak and the public finances are in a hugely precarious situation. Without taking action today, Rachel Reeves would have broken her fiscal rules. But even with the tweaks announced the fiscal headroom that she has to play with going forward is not only miniscule, but risks being wiped out by the Autumn Budget given the ongoing pressures on the UK economy in addition to the growing threats to global trade. This caused bond yields to spike briefly, but these appear to have since settled once again.
“The Office for Budget Responsibility has also slashed its growth forecast in half, joining a long list of organisations to have already done so. Growth for 2025 will now just be 1%, and climb no higher than 1.9% in any year between now and the end of the decade. While these figures suggest the UK economy will continue to experience sluggish growth, even those figures are a potential best-case scenario as many others have forecast significantly worse. The Chancellor was keen to tout pro-growth planning policies and increased spending in defence, but frankly many of these policies will not produce the goods any time soon.
“Furthermore, the OBR’s forecast that inflation will average 3.2% this year and not return to target sustainably until 2027 will provide households and businesses with little comfort. We still do not know the full extent of the USA’s tariff regime, and should Donald Trump decide to be even more aggressive on this front than he already has been, then inflation at 2% becomes somewhat of a pipe dream.
“That said, today’s Spring Statement did not come attached with the substantial spending cuts some predicted. Cuts to government spending now mean real spending increases of 1.2% rather than the 1.3% that was planned, and is better than many thought possible. It does appear Reeves has found the necessary cuts without either increasing taxes or making deep cuts – the focus has instead been on a multitude of smaller areas.
“Ultimately, this was a Spring Statement that could have been a lot worse for the UK economy. Labour has perhaps learned its lesson that the economy requires a more positive tone from government, and that the burden placed upon businesses at the Budget was enough for now. How long this can last remains to be seen. As Reeves was keen to stress, much of it is out of her hands and down to the global economy.”
Liam O’Donnell, a fixed income manager at Artemis, said:
“There may have been no shocks from the UK Chancellor today but tax hikes in the Autumn still look likely. Gilt markets appeared to respond reasonably calmly to the Spring Statement, despite the OBR halving growth forecasts for the UK for the year ahead, but I think that’s more because of what happened shortly after, when the UK Debt Management Office announced its issuance plans for the year ahead.
“First, the Spring Statement. The OBR has a habit – not one just developed under Labour – of being wildly optimistic in its growth and inflation forecasts. It halved the growth forecast for the year ahead but revised the forecasts beyond that upwards. These optimistic growth forecasts allow the Chancellor to meet her self-imposed fiscal rules over the life of parliament. But we can’t escape the fact that the government is increasing gilt issuance over the life of this parliament by over £50bn.
“High interest rates are increasing this debt servicing bill and the Bank of England’s more cautious approach to policy easing won’t provide any near-term relief. A higher debt financing burden (forecast to average around 3% of GDP over the next 5 years versus the pre pandemic costs of 2%) is largely inherited from the previous government, not that it makes the Chancellor’s job any easier. It means a lot more of the money we pay in taxes is going on paying loan interest costs rather than building hospitals or investing in growth.
“All this looks bleak. Why the market took this so calmly was because of the announcement of the Debt Management Office that it was issuing slightly fewer gilts than expected and fewer of these would be longer maturity, which reduces the risk burden on the market. But this positive news from the DMO is short-term relief from a long-term problem. After the dust settles, investors will quickly realise that the UK debt problem hasn’t gone away.”
Shamil Gohil, fixed income portfolio manager at Fidelity International said:
“The Chancellor has replenished the fiscal headroom back to £9.9bn (spending rule), which may provide some relief in the short term, but this is a temporary fix, kicking the can down the road. Longer term, budgetary challenges remain as higher interest rates and weaker growth persist.
“£10bn headroom is arguably not enough headroom compared to a planned ~1.5trn of spending and uncertainties ahead. The historical average has been closer to £30bn but recent governments have run it tighter. A £20bn number would have been more constructive for Gilts. Ultimately, the fiscal headroom is how the market quantifies and judges the Chancellor’s credibility. Gilts probably remain in no man’s land until the Autumn budget as we will likely to see some fiscal slippage and buffer erosion from now until then.
“With the debt to GDP ratio over 100% and rising, it is hard to get out of the doom loop with a stagnant economy. An ageing population is not helping so continued structural reforms are needed to boost productivity. There are question marks on how the increase in defence spending will be funded. The impact of global tariffs is unknown and will likely erode any future surpluses (via lower GDP).
“Today’s lower CPI print is likely temporary but should be supportive for front end UK rates as it reaffirms the likelihood of a 25bps cut in May. However, the UK may need to get accustomed to higher inflation and higher rates for the foreseeable future.”
Luke Bartholomew, Deputy Chief Economist, at Aberdeen, comments; “The Chancellor has restored her initial headroom of nearly £10 billion pounds following some well trailed welfare and day-to-day spending cuts. Crucially the debt management office said it is planning slightly less gilt sales this fiscal year than expected and skewed towards shorter issuance, which is helping gilt markets perform well.
But the key point from today’s announcement is that the £10 billion headroom the Chancellor has restored is very small and remains highly sensitive to adverse market moves or growth developments.
Indeed, depending on how the market responds to the US tariff announcements scheduled next week, the extent of UK inclusion within those tariffs, and any concessions the UK government makes as part of a deal with the US, this headroom could quickly be wiped out again.”
Hamish Martin, Partner at LAVA Advisory Partners, said:
“The Chancellor was true to her word that today’s announcement would be more of an economic update than delivering a raft of tax reforms or spending commitments. For businesses, hopes of u-turns on previously-announced policies such as National Insurance hikes did not materialise, meaning no relief for the escalating costs that are creating headaches for many of the UK’s 5.5 million SMEs.
“To help bolster public spending in the future, and to allow for greater defence spending, the Chancellor made clear her focus on scything government running costs. With a plan to reduce those costs by 15% by the end of this Parliament, it will be interesting to see if professional services firms are called upon to help the government restructure departments and deliver efficiency gains – there could be some major opportunities for consultancy firms if so. “More broadly, the challenging economic landscape for SMEs – higher inflation, wages and borrowing costs – points towards a potential spike in M&A activity. The extremely modest forecasts for the UK economy could make life challenging for small companies, in turn opening the door to more consolidation across various industries. Whether it’s private equity firms seeking new opportunities to inject capital they’ve raised and need to deploy, or larger firms targeting smaller competitors to acquire particular skills, IP or specialisms, we should expect players with stronger finances and bolder ambitions to remain active through M&A activity while others focus on survival.”
Reacting to the Chancellor’s increase in UK defence spending, Benjamin Craig, Associate Director – R&D Tax Incentives at Ayming UK, said:
“The Government has good reasons to increase defence spending, but this shouldn’t come at the expense of investment in high growth sectors like clean energy and green technology. These are areas where the UK has world-class capabilities, and it would be a serious mistake to shelve them as investment priorities. Businesses are already finding it hard to plan for the future in the current unstable environment, and what they need is consistent and clear policy commitments on the distribution of funds.
“Recent reports highlighting a lack of co-ordination between Whitehall departments in delivering Labour’s industrial strategy are concerning – especially for industries relying on targeted government support. Greater collaboration both within Westminster, and between government and businesses, will be crucial in delivering an industrial strategy that truly understands what businesses need to scale and grow.
“The industrial strategy also needs to provide clarity and stability; not just on which sectors the Government wants to prioritise, but how much funding they will receive, and who is eligible. For example, does a project developing a more efficient petrol combustion engine come under the category of green technology? Having a clear direction on the allocation of investments is the first critical step to nurturing and incentivising innovation.”
Alex Ranahan, tax analyst at FSL said:
“The UK’s role in the defence of Europe is set to expand far beyond what a mere £2.2bn extra spending can pay for. Any chancellor (or, indeed, any shadow chancellor) who does not recognise this is not a serious person.”
Rebecca Harding, Chief Economist of the DSR Bank, said:
“The Chancellor’s strategic approach to defence spending and procurement is welcome. She has correctly identified that there are challenges with the procurement process from government and, more importantly, that the supply side needs time and support to adjust to increases in funding and swifter procurement. This will need a system of guarantees, co-investments and clear communications between banks and government involved in national security supply chains. This will have huge, and positive, consequences for UK economic growth because Rachel Reeve’s has prioritised long-term resilience and not just a short-term funding fix.”
Matthew Amis, Investment Director, at Aberdeen, said:
“Aided by this morning’s better inflation data, the gilt market should be relatively happy this afternoon. OBR forecasts show GDP growth in the medium term slightly higher and inflation slightly lower. But more importantly the amount of gilts issued this year is well below market consensus. To add to the gilt positive tone the reduction in long maturity gilts has far exceeded market expectation. This should give the much-beleaguered gilt market the opportunity to perform in the short term.
Jason Borbora-Sheen, Multi Asset Portfolio Manager at Ninety One, said:
“Bond markets are most focused on policy from the US (tariffs and the shift from public to private growth drivers) and Europe (defence spending). Gilt yields have been more sensitive to the European fiscal agenda than US policy. These factors dominate domestic developments across regions, nevertheless we see this as a helpful statement for UK bonds:
“Fiscal headroom was restored without changes to the rules, this is likely as expected on average but there was a tail risk. The planned amount of gilt sales of £299bn in ’25 to ’26 was below the median estimate (of c£303bn and where the range was seen as £292bn-£321bn)
“The planned share of longer-dated bond issuance was lower than expected (c13% Vs 17%)
“For investors there are several positives for UK bonds, with less issuance than expected, the composition of issuance appears to be skewed towards shorter-maturity bonds and no changes to the rules governing the fiscal outlook.”
Sam Hields, Partner at OpenOcean, said:
“The Chancellor’s Spring Budget sends a more balanced signal on innovation-led growth. While backing the Oxford-Cambridge Arc as ‘Europe’s Silicon Valley’ may win headlines, the chancellor’s commitment to strategic partnerships with regions like Greater Manchester, West Yorkshire, and Glasgow through the National Wealth Fund is just as critical.
“To build a globally competitive industry the government must back regional tech hubs across the country. AI and enterprise software startups are scaling up outside London and the South East, with Belfast and Manchester leading the way. Access to high-quality capital at market-standard terms will be vital to allow startups to grow where they are, rather than be sucked into London or across the Atlantic. Success stories like York-founded planning software company Anaplan, recently acquired for over $10.7 billion, show that world-class tech can be built outside traditional hubs.
“For founders and investors alike, confidence in the UK market hinges on more than flagship projects. It is crucial for the government to send a clear signal that the UK remains one of the best places to build, scale, and exit. That’s how we attract global talent, reverse the trend of startups listing abroad, and strengthen the entire venture ecosystem.”
Marcus Jennings, Macro Strategist, Global Unconstrained Fixed Income, Schroders, said:
“The UK Spring Statement is meant to be a relatively low-key event. However, with little fiscal headroom left post Chancellor Reeves’s October Budget last year, together with economic growth disappointing and borrowing costs having risen since, it was clear that fiscal headroom needed to be rebuilt today to soothe market concerns.
“In the event, the OBR judged the Chancellor to have £9.9bn of headroom post the changes highlighted today, compared to £9.9bn in the autumn. Without any policy changes, this would have meant a deficit of £4.1bn against Reeves’s first fiscal rule. In order to rebuild some fiscal space, Reeves opted for a combination of spending cuts with welfare taking a hit, which was well flagged in advance, as well as some back dated departmental spending cuts. Elsewhere, increased scope to crack down on tax evasion was also judged to support higher revenues, as was the effects of the Government’s planning reforms. Lastly a reclassification of defence expenditure as investment, not day-to-day spending, helped rebuild headroom further.
“With fiscal headroom restored back to the same level as in the autumn, whilst still slim, it was broadly in line with expectations. Some gilt investors will breathe a short-term sigh of relief, compounded by lower-than-expected gilt sales in the upcoming fiscal year. However fiscal vulnerabilities will continue to linger. This is particularly the case with the OBR downgrading economic growth to 1% for this year (previously 2%) and with the risks to their growth forecasts in future years looking skewed towards the downside.”
Henry Cobbe, Head of Research, Elston Consulting, said:
“This was a muted budget with a muted market response for bond yields and sterling. The downgrade to Growth from the October 2024 was well flagged and consistent with BoE forecasts. The upgrade to inflation was consistent with our expectations and concerns around “zombie inflation” which is down but not dead. We need to see UK returning to growth for borrowing and spending plans to remain digestible.”
Glenn Collins, Head of Technical and Strategic Engagement at ACCA, said:
“Data from UK SME finance professionals indicated confidence hit a new low last quarter. Many small firms are grappling with the onset of additional costs, including wage bills and energy increases, as well as evidence of late payment creeping upwards. Businesses will welcome the Chancellor’s focus on growth in today’s statement, though there was little in the way of details about measures to boost skills, to encourage investment, open up access to affordable finance, or reduce costs for firms.
“Skills, tax and regulation are the foundations of our economy. They require clear vision and investment to overcome years of policy changes, additional complexity and under-investment. While today’s statement was always likely to be limited on detail given the Spending Review in June, there were some welcome announcements on additional investment in HMRC and a fund for innovation and efficiency across the public sector.
“However, the downgrading of this year’s growth forecast is a stark reminder that it’s more pressing than ever for the government to come forward with specific plans for reform. It’ll be crucial to ensure that the development and delivery of reform isn’t waylaid by spending cuts across government departments.”
Chris Cummings, Chief Executive of the Investment Association, said:
“We welcome today’s commitment from government to boost the culture of retail investment, including looking at options for ISAs reforms that will get the balance right between cash and equities to earn better returns for savers. Our industry has long called for the government to create a culture of inclusive investment, which will see more people benefit from investing, and we’re pleased that the government has now heeded this call.
“Today’s statement also reiterates the central role of investment in delivering UK growth, in light of the challenging circumstances facing the UK economy and households. Investment managers are already playing an active role to deliver growth by channelling £1.4 trillion to UK businesses, infrastructure and social projects annually. We agree with the Chancellor that innovation is a key enabler of growth and are delivering on this through our FinTech accelerator and work with the government and regulator on fund tokenisation and AI.”
Bill Casey, Portfolio Manager, Equities at Schroders, said:
“This Spring Statement is incredibly important for the trajectory of UK stocks, especially those that are domestically focused and mid-caps. Gilt yields, which form the basis of all interest rates, are trading almost 2% higher than their equivalents in Germany. Higher inflation and limited fiscal headroom are part of the problem, along with a large fiscal deficit. The Autumn Budget attempted to address the deficit and drive mid-term growth, but higher taxes on business has sapped investment and hiring.
“It all comes back to interest rates and growth, where lower rates are needed to reignite the investment cycle. Lower rates are also key to improving fiscal headroom, which has eroded since October. Options are now limited and having seen the impact that shrinking the state in the US is having on the cost of US debt, the UK is taking a leaf out of the DOGE book (the US Department of Government Efficiency). Lowering the cost of UK debt compared to countries like Germany will be key in enabling animal spirits both in the real economy and the stock market.”
Lisa Quest, Head of UK & Ireland, Oliver Wyman, said:
“The Spring Statement’s focus on economic stability and investment is important, but the real test will be in effective policy execution and long-term impacts on UK competitiveness. While the Chancellor’s commitment to reducing borrowing and debt is encouraging, it must be accompanied with the delivery of regulatory reforms to unlock investment. The UK is home to some of the most advanced financial services markets, which offer a significant opportunity for productivity growth through the integration of public finance with regulated finance and private credit.
“To drive economic growth, initiatives that improve the ease of doing business and attract global talent are essential. The UK can learn from global models that promote innovation and growth by establishing a supportive ecosystem for businesses, characterized by streamlined regulation and stable policies.”
Dan Boardman-Weston, Chief Executive at BRI Wealth Management, said:
“The Spring Statement was largely as expected, with growth expectations being cut, defence spending being increased, and the evaporated fiscal headroom being restored by cuts to benefits and central government. Markets have shrugged off the announcements as they have bigger things to concern themselves with at the moment. The UK remains in a precarious position and deep structural reform is required to set the country back on the right track. Whilst a number of the headwinds that the country has seen in the past few months are not the fault of the government, a number are, and little that we’ve seen or heard will deliver the change that this country requires.”
Oliver Jones, Head of Asset Allocation at Rathbones, said:
“Rachel Reeves prioritised fiscal discipline today in her deliberately low-key announcement, announcing plans to cut welfare spending and civil service running costs, and funding higher defence spending with cuts to the overseas aid budget. Ordinarily, this belt-tightening might be a reason for positivity about longer-dated gilts, whose prices tend to be particularly influenced by the fiscal outlook. They performed very well through the fiscal consolidation of the early 2010s. But this time we remain cautious. We’re sticking with our structural preference for shorter-dated bonds in balanced discretionary portfolios.
“Admittedly, the Debt Management Office published bond issuance plans for 2025/26 alongside the Spring Statement which may work in the opposite direction in the short term. Overall planned issuance was a little lower than expected at £299bn. And the share of long-dated issuance fell significantly too, from 21% to 13%, which may be more favourable to the long end of the gilt curve. But economic forces may ultimately work in the other direction, for two key reasons.
“First, the scale of the changes announced by the Chancellor today is comparatively small. This is still a far cry from the austerity of the Cameron-Osborne era. Given what was announced in the Autumn, government spending is on track to stay roughly flat as a share of GDP over the next few years, not contract significantly as it did then. And there are good reasons to think that the political will to maintain this level of fiscal discipline will weaken over the course of this parliament, given the size of the structural spending pressures in health and defence. There’s also ongoing uncertainty about the inflation outlook, including the impact of the changes to minimum wages and national insurance contributions announced in the Autumn Budget, which matters a lot for long-dated gilts.
“Second, in our view the global economic backdrop continues to favour short over long-dated bonds – and that matters for the UK. Germany has just transformed its previously strict ‘debt brake’, allowing itself to run far larger budget deficits for years to come, while the EU plans to exempt defence spending from its own fiscal rules and to launch €150bn of new defence-focused joint borrowing.
“Meanwhile in the US, the Trump administration talks a good game about reining in government spending and bringing Treasury yields down, but House Republicans have passed a budget plan which would keep fiscal policy very loose. China announced at its recent National People’s Congress that it plans to loosen the purse strings too. In other words, the world’s largest economies plan to keep on borrowing, or to borrow even more. That adds to the uncertainty around longer-dated debt in the UK, which is significantly influenced by these global factors.”
Michael Sheehan, fixed income fund manager, EdenTree Investment Management, said:
“As expected, lower growth forecasts and weaker finances continue to make the Chancellor’s job considerably harder. While Gilts gave up some of their gains throughout the chancellor’s speech, the market welcomed the Debt Management Office (DMO)’s bond sale forecast with open arms, with overall issuance likely lower than expected. With a lower-than-forecast inflation print this morning and a favourable debt issuance outlook we would expect a recovery in the underperformance seen thus far this year in Gilts.
“It remains to be seen how sustainable the rally will be. With the Chancellor’s statement maintaining the status quo and the downgrade for this year’s growth forecast, UK finances are unlikely to see a material improvement, or to provide the gilt market with the assurance that it needs.”
George Lagarias, Chief Economist at Forvis Mazars, said:
“Markets don’t hate big budgets nearly as much as they hate big surprises. The bond market is largely unchanged before and after the budget, suggesting that the Chancellor has managed to play all the right notes by carefully setting expectations and then sticking fairly close to them. The UK needed to spend big on Defence and Healthcare, without completely gutting other services. Chancellor Reeves intoned as many times that she would stick to her fiscal rules, as the markets needed to hear.
“Given the deteriorating global economic outlook, the OBR had little choice other than to bring growth expectations down, closer to market consensus of nearly 1%. This is a realistic assessment of things, and sends a very clear signal to the markets that the UK government is playing by the rules.”
Lucy Coutts, Investment Director at JM Finn, said:
“With more anxiety in the markets about the government’s borrowing than the fiscal rules headlines, no big moves in the gilt market would be seen as success. At the time of writing, the longer dated gilts are little changed. The OBR was an outlier in its optimism in November with little evidence to support its 2% target, and it has now reduced its growth forecast for the UK in 2025 to 1%.
“The UK’s credit rating from S&P is AA stable. When S&P reviews the rating in April, it will be looking for a measured way in which the UK finances are managed. I think the statement demonstrates the UK government has a plan – the gilt ship is steady.”
Sheldon MacDonald, CIO of Marlborough, said:
“The bottom line is that markets aren’t going to price a promise of what might happen in 2029 versus an obvious reality of what’s happening in 2025. What’s truly relevant is what the Chancellor is doing today, what’s happening right now, what the markets need to consider over the next hours, days, weeks and months.
“Nobody expected any kind of magic bullet here, and we certainly didn’t get one. On the whole, not a great deal has changed – but what has changed is in the wrong direction. What we hoped for is that the Chancellor would fix the roof before building an extension. Instead it looks like she’s decided to build an extension while the roof still has a gaping hole.”
