The can has been kicked down the road today after Rachel Reeves' Spring Statement, was more of a budget. But a budget that saw no tax hikes and on a road that does have some light at the end of the tunnel (hopefully in time).
Just hours before delivering the update, the Chancellor faced a major setback after the Office for Budget Responsibility (OBR) rejected her forecasts for how much its welfare cuts would save (the OBR is the government's official spending watchdog).
This forced Reeves to go further than expected with spending cuts to ensure she fell back within her self-imposing borrowing rules by the skin of her teeth. Here were the main takeaways from the statement;
- GDP for 2025 has been revised down from 2% to just 1% this year - But, slightly higher GDP is now predicted for 2026-2029 - Inflation is expected to rise to 3.2% in 2025 (3.8% peak in July) - Inflation is expected to hit the 2% target again some time in 2026
All-in-all the statement has been received well by most and financial markets have been calm to the news (unlike last time). A 25bp rate cut in May has risen to an 80% chance now, which is why the Pound is in the red today after February inflation fell to 2.8% from 3% prior.
Economists are mixed on whether there will be one more rate cut this year after May or will it be 2 at most or none at all. Each scenario rather dramatically changes the trajectory of the Pound. For now, GBP remains stable and at favourable levels still.
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