Rachel Reeves is set to deliver her spring statement on Wednesday, issuing a stark message that public spending reductions are now unavoidable due to shifting global conditions and higher government borrowing expenses.

Following the announcement of significant welfare cuts that have sparked controversy within her own party, the chancellor will outline the latest projections from the Office for Budget Responsibility (OBR) regarding the economic outlook and public finances.

These are the key economic themes expected to frame her address in Parliament, illustrated through five essential charts:

Economic slowdown in 2024

The UK economy is teetering on the edge of stagnation, with business and consumer sentiment declining sharply in recent months.

Despite Labour’s pledge upon winning power last July to reignite growth, GDP has remained virtually flat. Official statistics show 0% growth in Q3 of 2024 and only a 0.1% uptick in Q4. January brought no relief, as economic activity contracted by 0.1%.

Economists cite growing international uncertainty—particularly following Donald Trump's re-election—as well as Labour’s fiscal messaging and tax increases. Persistently high interest rates and elevated inflation continue to weigh on growth.

In this context, the OBR is likely to downgrade its 2025 growth forecast significantly, possibly halving it from its previous 2% projection from last October. This mirrors the Bank of England’s recent revision, cutting its forecast from 1.5% to just 0.75%.

Higher borrowing costs

Government borrowing has become more costly since October’s budget, influenced by both domestic issues and international market anxieties over Trump's protectionist policies.

Yields on 10-year UK government bonds have climbed to around 4.8%, up substantially from roughly 4% a year earlier.

The OBR is also expected to raise its inflation projections. With a cold European winter elevating energy prices, households are once again feeling the pinch. In contrast to the 2.6% inflation figure forecasted by the OBR for 2025 last October, the Bank of England now warns inflation could spike to 3.7% by autumn.

This stubborn inflation makes it difficult for the Bank to reduce interest rates. While three cuts occurred last year, financial markets now anticipate only two more modest reductions, bringing the rate down to 4%.

Pressure on fiscal discipline

Increased interest payments on government debt are expected to erase the £9.9bn fiscal buffer Reeves reserved last October for her core budget rule: balancing current spending and revenue within five years.

With national debt exceeding £2.6tn—near 90% of GDP—the cost of servicing it is surging alongside borrowing rates.

The OBR's figures from October projected debt interest expenses at £105bn for this fiscal year, rising to £122bn by 2029-30. These estimates are due for an upward revision.

Reeves has reiterated her commitment to meeting her fiscal guidelines, calling them “non-negotiable.”

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Welfare reductions

The government recently unveiled plans to save £5bn by curbing sickness and disability benefits, despite opposition from Labour backbenchers, advocacy organisations, and anti-poverty groups concerned about impacts on vulnerable people.

After months of deliberation, these changes aim to help the chancellor rebuild some of the fiscal headroom she’s lost.

Spending on benefits tied to health and disability for working-age people has grown substantially—particularly since the onset of the Covid-19 crisis. The Resolution Foundation projects this spending could hit £92bn annually by decade's end.

Government ministers argue the reforms have both an ethical and economic rationale, contending that the current system disincentivizes work. While reigning in benefits growth, the government plans to invest an additional £1bn annually in job support programs.

No repeat of austerity?

Prior to the general election, Labour vowed to avoid a return to austerity budgeting. Reeves is likely to counter suggestions to the contrary by pointing to £40bn in annual tax increases used to fund £70bn in new public spending presented in the autumn budget. She also plans to boost capital investment by over £100bn across the next five years.

Still, with fiscal constraints tightening, she may seek savings toward the end of the current parliamentary term by reducing future spending plans before departmental budgets are set during June’s spending review.

Last October, the chancellor planned for departmental funding to grow by an average of 1.3% per year in real terms from 2025-26 onward. Cutting this growth rate to roughly 0.9% could generate savings of £10bn by 2030, according to calculations by the Institute for Fiscal Studies.

Departments without protected budgets—such as local councils, justice, and cultural services—would experience the brunt of the squeeze, continuing a trend of deep cuts dating back to 2010.