Far from improving, Britain’s economic outlook appears to be worsening by the day.
“There are no quick fixes,” Chancellor Rachel Reeves warned MPs on Wednesday as she delivered her spring statement. On this point, she was absolutely right. Since the 2008 financial crisis plunged Britain into economic turmoil, successive chancellors have taken to the Commons to present their grand plans to stabilise and rejuvenate the economy.
From Alistair Darling to George Osborne, Philip Hammond, Rishi Sunak, Kwasi Kwarteng, Jeremy Hunt, and now back to Labour with Reeves, each has promised solutions. Yet, for all the polished rhetoric and carefully crafted speeches, none have succeeded in reversing Britain’s economic decline. Reeves may have sounded reassuring, but the brutal reality remains unchanged.
Bleak growth forecasts and harsh realities
The Office for Budget Responsibility (OBR) has slashed its GDP growth forecast for 2025 from 2% to just 1%. Even the upgraded predictions for the remainder of the decade—1.9% in 2026, 1.8% in 2027, 1.7% in 2028, and 1.8% in 2029—fall short of the long-standing 2% benchmark for sustainable growth.
Barring the brief Covid recovery years of 2021 and 2022, Britain has not experienced 2% annual growth since 2017, when GDP rose by a now seemingly unattainable 2.7%. Strip away the optimistic veneer of Reeves’s speech, and the grim truth is laid bare in the OBR’s latest report. The document paints a worrying picture of stagnation, declining productivity, and weak consumer confidence. The much-trumpeted planning reforms, though welcome, are unlikely to deliver more than a “modest boost” to output.
Worse still, the OBR’s latest forecast for cumulative economic growth between 2023 and 2029 is half a percentage point lower than projections made just six months ago. Productivity, the foundation of long-term economic prosperity, is performing even worse than expected, falling more than 1% below previous estimates.
Storm clouds gather
So, how has the economic outlook deteriorated so drastically in just a few months? The OBR attributes two-thirds of the decline to external factors—rising energy prices, slower-than-expected interest rate cuts, and general economic uncertainty. The remaining third is down to the UK’s persistently poor productivity performance.
And the worst may be yet to come. April brings a wave of fresh financial burdens, with National Insurance hikes, increased water and energy bills, and the so-called “stealth tax” of frozen thresholds pushing the tax burden to an unprecedented 37.7% of GDP by 2026.
Meanwhile, across the Atlantic, former US President Donald Trump is preparing to unveil a raft of retaliatory tariffs on 2 April, dubbed “Liberation Day.” While the UK is not an immediate target, an all-out trade war could slash British GDP growth by a full percentage point in 2026-27. Even in a milder scenario, where tariffs hit only China, Canada, and Mexico, Britain’s GDP would still take a 0.2% hit—growth it cannot afford to lose.
A crisis with no end in sight
The Chancellor avoided using certain words in her speech, but the OBR did not shy away from the harsh truth: Britain’s long-term fiscal outlook is dire. An ageing population, climate change, and growing geopolitical tensions are placing unsustainable pressure on public finances.
Despite Reeves’s best efforts, Wednesday’s spring statement will likely be remembered as yet another exercise in kicking the can down the road. But without an economic miracle, that reckoning cannot be postponed indefinitely.
It would be foolish to deny that a series of geopolitical “black swan” events—the financial crisis, the Covid pandemic, and the cost-of-living crisis fuelled by the Ukraine war—have devastated Britain’s economy. Add to that a self-inflicted wound in the form of Brexit, and the result is a nation saddled with debt levels not seen since the early 1960s.
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And with Trump’s trade wars looming on the horizon, a fifth crisis could be on its way. Combine these external shocks with the deep-rooted challenges flagged by the OBR—demographic shifts, Russia’s threat, and stagnant productivity—and it becomes clear why chancellors repeatedly return to Parliament with yet another batch of unpalatable economic medicine.
How long can Reeves survive?
Despite the gloomy outlook, Britain still possesses significant strengths. World-class universities, a history of innovation, and London’s status as a global financial hub all offer glimmers of hope. Moreover, while official unemployment remains low, the reality is less reassuring—economic inactivity remains stubbornly high, masking a deeper problem in the labour market.
At some point, a Chancellor will need to face the nation’s long-term problems head-on and craft a vision that reignites economic dynamism. Reeves made the best of a bad hand this week and will survive for now.
But if Britain’s economic fortunes continue to deteriorate in the next six months, the pressure on her will become unbearable. The May 1 local elections and the Runcorn and Helsby by-election will be the first real test of Labour’s economic credibility. If the results are poor, a major Cabinet reshuffle may be unavoidable.
Sir Keir Starmer will be reluctant to discard Reeves, who has been a key ally. But if the economy fails to improve and public discontent grows, he may be left with no other option. For Rachel Reeves, the clock is ticking.
