British finance minister Rachel Reeves delivered a mid-cycle budget update to parliament on Tuesday that incorporated fresh figures from the Office for Budget Responsibility (OBR). The outlook she presented showed lower expected inflation and reduced borrowing relative to the OBR's earlier projections, even as the watchdog trimmed its near-term growth forecast.
The statement came as international tensions in the Middle East intensified and equity markets were under pressure, a backdrop Reeves noted as she set out the numbers.
Growth forecasts revised down for this year
According to the OBR figures cited by Reeves, the United Kingdom's economy is expected to expand by 1.1% in the current year. That projection is weaker than the 1.4% growth that the OBR had forecast for 2026 in its November outlook, when Reeves presented her full annual budget. Despite the downgrade for this year, the OBR has nudged forecasts slightly higher for later years: output is now expected to rise by 1.6% in both 2027 and 2028, and by 1.5% in 2029 and 2030. Those later projections compare with the OBR's prior expectation of 1.5% growth in each year from 2027 through 2030.
Fiscal position shows more headroom
Reeves said the government now expects to have a larger margin for error in meeting its principal fiscal target by the end of the decade. The OBR's updated numbers put expected tax receipts at 23.6 billion pounds above projected day-to-day public spending for the fiscal year 2029/30, she reported.
Inflation and labour market outlook
The OBR's estimate for consumer price inflation was revised down for 2026, with Reeves saying the watchdog now expects inflation to average 2.3% that year. By contrast, the OBR in November had forecast inflation of 2.5% for this year when the full budget was announced.
On the labour market, Reeves said the OBR projects unemployment will peak later this year before declining in each subsequent year of the forecast period. Unemployment is forecast to end the parliamentary term at 4.1%, which Reeves noted is lower than the rate at the start of the parliament. She indicated she will set out additional reforms in the coming weeks aimed at addressing youth unemployment.
Trade policy to be addressed
Reeves also announced that she intends to present proposals for closer trade ties with the European Union in a speech scheduled for the coming weeks.
These fresh OBR projections and the policy signals that accompanied them will inform markets and public finances as the government balances inflation, borrowing and growth amid uncertain global conditions.