UK Spring Statement Preview - Summary

Date: 27 February 2026

Author: Kathleen Brooks, Research Director UK

Key Takeaways

• Unemployment forecast set to rise, but potential growth upgrade may be on the horizon.
• The Office for Budget Responsibility (OBR) is expected to provide a fiscal boost.
• The UK bond market shows resilience due to fiscal improvements and reduced political risks.
• Concerns arise regarding the impact of falling migration on tax returns.

Overview

The lead-up to the Chancellor's Spring Statement on 3rd March 2026 has been relatively quiet, contrasting sharply with the speculation surrounding the previous November's Budget. Chancellor Rachel Reeves has indicated that the Spring Statement will be a formality, focusing on updated forecasts rather than significant tax and spending changes.

Unemployment and Growth Forecasts

The OBR is expected to revise the unemployment rate higher, from a previous estimate of 5% to around 5.2%, with youth unemployment now at 15.3%. While growth forecasts for 2025 may be downgraded from 1.3% to 1.1%, there is optimism for a potential upgrade in 2026 due to a strong performance in the private sector, as indicated by a rise in the composite PMI to 53.9.

Fiscal Improvements

The OBR's fiscal forecasts are anticipated to show a maintained fiscal headroom of £21.7 billion, bolstered by a record budget surplus of £30.4 billion. This surplus is attributed to increased self-assessment tax returns and capital gains tax receipts. Additionally, the UK’s debt servicing costs are reported to be £4 billion below OBR estimates, and day-to-day government spending has decreased by 0.7% year-on-year.

Bond Market Resilience

The improved fiscal outlook has strengthened the UK bond market, making it more resilient to political risks. The political risk premium for UK bonds has decreased, despite recent political challenges faced by the Labour party. The expected reduction in gilt sales for the 2026/27 fiscal year by 20% to £245 billion is also contributing to this positive sentiment.

Potential Challenges

Despite the positive fiscal outlook, there are concerns regarding the impact of a sharp decline in migration on tax revenues. While Reeves may focus on the recent fiscal improvements, any indication from the OBR that these gains are temporary could negatively affect market sentiment towards UK Gilts and the pound sterling.

Conclusion

Overall, if the Spring Statement proceeds as low-key as anticipated, significant market reactions are not expected. However, if the OBR presents a bleak economic outlook with rising unemployment and declining tax revenues, both the sterling and Gilts may face vulnerabilities.