The spring forecast was meant to be a moment to take stock of Rachel Reeves’s stewardship of the economy.
But events of recent days have rendered this occasion rather meaningless: The chancellor knows only too well that war in the Middle East could throw her best-laid plans off course, so it was curious to watch her at the despatch box promising to deliver “stability” and cut the cost of living, when she knows that all of this could prove beyond her control.
But the calculation from those in her team is that, four days into the conflict, it is impossible to say much about it.
The Iran-Israel conflict in June last year saw big spikes in energy prices, but it lasted only 12 days and didn’t trigger a wider crisis.
Donald Trump says he thinks the current conflict should be over in four or five weeks, although that is also not in his control.
Politics latest: Growth forecast downgraded for 2026
Reeves on Tuesday took the approach to “keep calm and carry on”, largely sticking to her script that the decisions she had made last November, to build headroom against her fiscal rules and cut energy prices, had made the UK a better place to withstand economic turbulence.
“This government has the right economic plan,” she told MPs.
“A plan even more important in a world that in the last few days has become yet more uncertain.”
This economic update was very much not a fiscal event, and the chancellor did not make any tax or spend announcements.
The biggest news was a downgrade in economic forecasts for 2026, with the Office for Budget Responsibility (OBR) predicting slower growth for this year – from 1.4 per cent to 1.1 per cent – but upgrading it for 2027 and 2028.
On the plus side for the chancellor, inflation had fallen faster than expected since the autumn, and her “headroom” against her fiscal rules had grown to £23.6bn, against November’s £21.7bn (although changes to the farm tax, business rates for pubs and special education needs is likely to eat up over £4bn of that, before we even start on the massive hole in the defence budget).
But even as I write down these figures, I am aware of what else the OBR said on Tuesday: That the global and UK economies could face “a very significant hit” from the war in Iran. Any predictions made right now are incredibly uncertain.
That is why I was a little surprised that the chancellor stuck so closely to a script that had clearly been prepared before the US and Israel launched strikes on Iran.
Reeves spoke of the right choices her government had made, bringing “stability in our public finances, interest rates and inflation falling, living standards rising…and more money in the pockets of working people”.
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She said: “I know that the question people will ask themselves at the next general election is this: Are me and my family better off? I am determined that the answer will be yes.”
But, this is the reality: The risk of this war hitting inflation is real. Higher energy prices will hurt. They will hit at the petrol pumps, and then feed through to higher prices in our weekly shop, restaurant bills and holiday bills, as higher costs feed through supply chains.
As for energy bills, the Resolution Foundation thinktank said on Tuesday that if gas prices of recent days carry on for a sustained period, household energy bills could rise by £500 in July.
For a government that has promised to drive down the cost of living, this is a nightmare – the prospect of green shoots snuffed out by events beyond its control.
That was already hard enough, and the events of this week make it even harder still.
