OBR Cuts UK’s Economic Growth Forecast to 1% in 2025

Admin, The UK Times

27 Mar 2025 • 05:30 am

OBR Cuts UK’s Economic Growth Forecast to 1% in 2025

The UK government plans to spend less money because the economy is not growing and the government is earning less due to higher borrowing costs.

Table of Contents

UK’s Economic Growth

The UK’s economy is expected to grow by 1% this year, according to Treasury chief Rachel Reeves. This is lower than the 2% growth predicted last October by the Office for Budget Responsibility (OBR), an independent organization that makes economic forecasts.

The OBR now expects the economy to grow by 1.9% in 2026 and 1.7% in the following years. This is slightly higher than its previous forecast for 2027 but lower than before for 2026.

Reeves also announced a reduction of $7.9 billion in government spending by 2029-2030. However, spending will still grow by 1.2% per year after inflation, slightly less than the 1.3% growth predicted earlier.

Meanwhile, inflation is now expected to be 3.2% in 2025, higher than the 2.6% forecast last October. In February, UK inflation dropped to 2.8%.

Tariff Threat

Former US President Donald Trump has threatened to raise tariffs (import taxes) on many countries. If the US increases tariffs by 20%, the UK’s economy could shrink by 1% in 2026-2027, according to the OBR.

This could also hurt the UK’s budget, as higher tariff revenue would be outweighed by lower tax income from businesses and consumers.

Welfare Spending Cuts

Reeves said the government’s planned cuts to welfare benefits will save $6.1 billion. Spending on disability and sickness benefits will still rise, but overall welfare spending will decrease as a percentage of the economy starting in 2026.

Earlier this month, Work and Pensions Minister Liz Kendall announced plans to cut $6.4 billion in disability and long-term illness benefits. The government is also cutting $9 billion from overseas aid to help increase defense spending to 2.5% of the economy.

Defense Spending

Reeves wants the UK to become a “defense industrial superpower.” She announced an extra $2.8 billion for defense, with 10% of the budget going to new technology like drones and artificial intelligence.

The government will also invest $515.4 million in defense innovation to bring new technology into use faster. These moves come as global tensions rise and Trump urges Europe to strengthen its defenses.

Borrowing Costs and Bonds

The UK government is expected to borrow $61.4 billion more by 2030 than previously predicted due to worsening public finances.

Following Reeves’ statement, the UK’s debt management office said it would issue $386 billion in government bonds in 2025-2026. This is slightly lower than the $392.2 billion expected by financial experts.