The Chancellor unveiled an “intentionally unexciting” Spring Statement on Tuesday, but events in the Middle East threaten to complicate the fiscal picture, commentators have warned.
As expected, Rachel Reeves’ statement to the House of Commons did not deliver tax changes or major spending commitments. Rather, Reeves used her statement to outline updated growth forecasts from the Office for Budget Responsibility.
The OBR has downgraded its forecast for economic growth this year to 1.1%, having previously forecast that the economy would grow by 1.4% in 2026. However, it expects economic growth to edge up in the following years, to 1.6% in 2027 and 2028 and 1.5% in both 2029 and 2030. The forecast also says inflation will fall to 2.3% this year, before reaching the Bank of England’s 2% target in 2027.
Additionally, the Government has increased its fiscal headroom since November 2025, from £21.7 billion to £23.6 billion.
However, commentators were quick to note that today’s forecasts do not take into account any potential impact from the conflict in the Middle East and the resulting jump in energy prices, warning that forecasts were “already out of date.”
UK gas prices surged by more than 46% on Tuesday, pushing prices to a three-year high, following the news that Qatar, the third largest liquefied natural gas exporter, had stopped production after an attack by Iranian drones.
Brent crude oil also climbed by more than 5% to just over $81 a barrel.
Lindsay James, investment strategist at Quilter, said: “The Spring Statement should have been a non-event, used primarily as a source of political capital by Rachel Reeves. However, given events unfolding in the Middle East, today’s statement already looks a little out of date.
“Bond yields have risen sharply, expectations for rate cuts have been tapered from two this year to just closer to one, while gas prices have spiked significantly in the last 24 hours, providing fresh fears a looming burst of inflation is coming should the Middle East conflict become protracted. Fiscal headroom, as a result, may need recalculating in weeks to come.”
Faye Church, senior planning director at Rathbones, said: “The difficulty is that geopolitics has a habit of turning yesterday’s unknowns into today’s shocks – and the escalating situation in Iran has already raised serious questions about whether the new forecasts were out of date almost as soon as they landed.
“The Statement itself was intentionally unexciting. In volatile times, predictability is a policy tool in its own right. However, events in the Middle East have complicated the fiscal picture. For most households, geopolitics can feel remote, until it shows up in oil prices – at the petrol pump, on energy bills, and in the weekly shop.”
Church said geopolitical shocks also “rarely arrive neatly”, tending to push governments into reactive choices, whether that means higher defence spending, fresh support to head off higher inflation or renewed pressure to keep energy costs contained.
“Any of these could quickly reshuffle fiscal priorities, particularly at a time when the public finances are already tight,” she added.
Chris Beauchamp, chief market analyst at IG, raised question marks over Reeves’ inflation outlook.
“Today’s note that inflation is falling faster than expected is, like all plans, unlikely to survive first contact with the enemy. UK gas prices are rising at their fastest pace in recent history, and much faster than in 2022. The Government might be optimistic, but consumers are already beginning to fret,” he explained.
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