Spring Forecast 2026: What It Means for the UK Economy and Financial Services

The UK’s latest Spring Forecast provides an important snapshot of the country’s economic outlook and public finances. Delivered by the Chancellor and based on analysis from the Office for Budget Responsibility (OBR), the forecast outlines expectations for growth, inflation, employment and government spending over the coming years.

While there are signs of gradual improvement in some areas of the economy, the overall picture remains complex. Global uncertainty, changing labour market conditions and rising public spending pressures continue to shape the UK’s economic landscape.

For professionals working in finance, or looking to build a career in the industry as a financial advisor, understanding these developments can help provide valuable context for the financial decisions shaping the UK economy.

Economic Growth: A Slower but Stable Outlook

The Spring Forecast suggests that economic growth will remain modest in the short term with the UK economy expected to grow by around 1.1% in 2026, slightly lower than the previously forecast figure of 1.4%.

Although this represents a slowdown, the medium-term outlook appears more stable. Growth is projected to average around 1.6% annually over the remainder of the forecast period.

A number of factors are influencing this outlook, including productivity growth, labour supply and global economic conditions. As the UK population ages and migration trends evolve, these factors will continue to affect the pace of economic expansion.

Inflation Expected to Fall Towards Target

One of the more positive developments in the forecast is the expected fall in inflation. Consumer Price Index (CPI) inflation is projected to decline from 3.4% in 2025 to around 2.3% in 2026, reaching the Bank of England’s 2% target by late 2026.

This decline reflects several key developments, including lower energy prices, easing food costs and stabilising supply chains following recent global disruptions.

A reduction in inflation could eventually allow interest rates to fall, easing pressure on households and businesses. However, the outlook remains sensitive to global events such as geopolitical tensions or fluctuations in energy markets. Recent instability in the Middle East, including tensions involving Iran, has also contributed to uncertainty in global energy markets and economic forecasts.

Public Finances and Government Borrowing

Managing the UK’s public finances remains a central focus of the government’s economic strategy. According to the forecast, public sector borrowing is expected to fall from 5.2% of GDP in 2024/25 to around 1.6% by 2030/31.

Despite this improvement, national debt levels remain high. Debt interest payments are forecast to increase from £110 billion in 2025/26 to approximately £137 billion by 2030/31, reflecting the ongoing cost of servicing government borrowing.

These figures highlight the long-term financial impact of recent economic shocks and the importance of maintaining sustainable fiscal policies.

Labour Market Changes

Recent data suggests the UK labour market is becoming more subdued. The unemployment rate is expected to rise to around 5.3% in 2026, reflecting softer economic growth and cautious hiring among employers.

However, this increase is expected to be temporary. As economic conditions improve, unemployment is forecast to gradually fall to around 4.1% by 2030.

Technological changes, including the increasing use of automation and artificial intelligence, may also shape future employment trends. Rising labour costs and productivity shifts could influence how businesses manage their workforce in the coming years.

Developments in the Housing Market

The housing market remains a key part of the UK economy. The forecast suggests that house prices will grow steadily but modestly, with average annual increases of just over 2.5% expected during the forecast period.

Mortgage rates are projected to rise slightly, from 4.1% to around 4.5% on average. Although still higher than previous years, these rates are slightly lower than earlier forecasts due to changing market expectations.

Housing supply is expected to dip in the short term before increasing later in the decade, with planning reforms expected to support higher levels of construction.

Rising Tax Revenues

Government revenues are forecast to increase steadily over the coming years. Public sector receipts are projected to rise from 38.8% of GDP in 2024/25 to 42.7% by 2030/31, equivalent to roughly £1.6 trillion in total receipts.

Much of this increase will come from personal taxes and capital taxes. A major driver is the continued freeze on personal tax thresholds until April 2031, which gradually moves more individuals into higher tax bands as wages rise.

While this approach strengthens government revenue, it may also influence incentives to work, save and invest.

Increasing Welfare Spending

Welfare spending is expected to continue rising over the forecast period. Total expenditure is projected to increase by £18 billion in the current financial year, bringing spending to £333 billion.

By 2030/31, welfare spending could reach £407 billion, reflecting demographic changes and rising demand for health-related benefits.

An ageing population and growing numbers of disability benefit claims are expected to be major drivers of this increase.

Defence Spending and Global Uncertainty

Global geopolitical tensions are also influencing government spending priorities. The UK is considering increasing defence spending to 3.5% of GDP by 2035 to strengthen national security.

Achieving this target could require around £6 billion in additional spending in the near term, raising important questions about how these funds will be sourced.

Balancing defence commitments with other public spending priorities will remain a key challenge for policymakers.

Migration Trends and Population Growth

Migration continues to play an important role in the UK’s population growth and labour supply. Net inward migration is expected to stabilise and rise to around 290,000 people annually by 2030, largely driven by arrivals from outside the EU.

However, revised data suggests that more British nationals are leaving the UK than previously estimated, which slightly reduces overall population growth projections.

Preparing for the Future of Finance

The Spring Forecast 2026 highlights the complex balance between economic recovery, fiscal responsibility and global uncertainty. While inflation is expected to ease and borrowing may decline, pressures remain in areas such as public spending, labour markets and geopolitical risks. 

For those working in financial services or considering a career in the sector, staying informed about these developments is essential. Understanding how economic forecasts shape financial policy can provide valuable insight into the broader forces influencing the industry.

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