Growth forecast halved for 2025 but later years upgraded

The UK economy is now predicted to grow at a much slower pace this year than previously expected, according to the government’s official forecaster.

Presenting her Spring Statement, Chancellor Rachel Reeves said the Office for Budget Responsibility (OBR) thinks the economy will now grow by 1% in 2025, down from its October prediction of 2%.

“I am not satisfied with these numbers,” said Reeves, who has made growing the economy one of her key promises.

However, the OBR raised its growth forecasts for the following years and Reeves said by 2029-30 the economy would be bigger compared to the forecast at the time of the Budget in October.

The watchdog now expects the economy to grow by 1.9% in 2026, by 1.8% in 2027, by 1.7% in 2028 and by 1.8% in 2029.

The chancellor said the OBR had now taken into account planning reforms and housebuilding targets the government announced when it first took office in July and had concluded these reforms would increase GDP by 0.2% by the end of the parliament, and by 0.4% within a decade.

“The OBR have concluded that our reforms will lead to housebuilding reaching a 40-year high of 305,000 by the end of the forecast period,” Reeves said.

Labour has pledged to build 1.5 million homes in England by 2029-30, and Reeves said the party’s reforms were “taking us within touching distance” of delivering that manifesto promise.

The OBR also raised its forecast for inflation this year to 3.2% but expects the rate of price rises to fall back to the Bank of England’s 2% target in 2027.

Real household disposable income per person is expected to grow by an average of around 0.5% a year, the OBR said. The forecaster said stronger wage growth meant this figure was slightly higher than in its previous prediction in October.

Reeves said this meant that households would be on average over £500 a year better off under Labour than under the previous government.