New Economic Forecasts Released with Spring Statement
Recent figures projecting the future state of the UK economy have been published alongside the chancellor's Spring Statement, providing insight into potential effects on personal finances.
Presented below are three important statistics from the government's official forecaster that may influence your financial situation.
1. Inflation
The Office for Budget Responsibility (OBR) forecasts UK inflation, which tracks the rising cost of living, to be at or near the target rate of 2% over the next five years.
This represents a significant decrease from the peak inflation rate of 11.1% recorded in October 2022. In January 2024, inflation remained elevated at 3%, still above the target.
Consequently, the Bank of England might have been expected to reduce interest rates, which would lower borrowing costs on mortgages and personal loans but also decrease interest earnings on savings.
However, these forecasts do not incorporate the potential impact on prices, such as petrol, resulting from the recent US-Israeli conflict with Iran. The data was compiled prior to the escalation of hostilities and air strikes.
Given the recent developments in the Middle East, the future path of interest rates has become less certain. This uncertainty could lead to fewer anticipated interest rate cuts or possibly even rate increases.
2. Spending Power
Average disposable income, which measures the amount of money households retain after paying taxes, provides an indication of spending power in the coming years.
Essentially, this figure reflects how much living standards might improve when adjusted for inflation.
The OBR projects that real household disposable income will grow annually between 0.6% and 0.9% from 2026 through 2030.
This growth rate is relatively modest compared to previous decades.
The government's tax policy, specifically the freezing of tax thresholds—the income levels at which tax rates increase—has influenced this projection. Chancellor Rachel Reeves announced in last year's Budget that these thresholds will remain frozen until 2031, extending the freeze by three years beyond earlier plans.
"This means any kind of pay rise could drag you into a higher tax bracket, or see a greater proportion of your income taxed than would otherwise be expected."
3. House Prices
For homeowners and prospective buyers, UK house prices remain a key concern.
Property prices have been relatively stable recently, although borrowing costs have been more difficult to predict.
The OBR forecasts house prices to increase annually between 2.4% and 2.9% from 2026 to 2030.
This relative stability may encourage individuals to take their time when buying or selling properties, although local housing markets often exhibit unique characteristics.
Mortgage lenders have intensified competition for first-time buyers this year by offering larger loans relative to income and requiring smaller deposits.
This has somewhat alleviated pressure on rental costs.
Nonetheless, rents for new tenancies have surged since 2020. An interactive graphic illustrates the expansion of areas where monthly rents exceed £1,000, primarily extending from London. It is important to note that average rent figures do not account for inflation.
Users can utilize a tool, based on data from property portal Zoopla, to examine how private rental costs have increased in their local council areas across England, Scotland, and Wales.
All OBR figures are forecasts and thus carry no guarantee of accuracy.
As with any projections, it would be unwise to make financial decisions solely based on these expectations, as unforeseen events could significantly alter outcomes.
Graphics by Tommy Lumby and Phil Leake
