Background. Global events, including the election of Donald Trump in the US, have impacted UK growth and increased borrowing costs. The Office for Budget Responsibility has reduced its 2025 growth forecast for the UK from 2% to 1%. As a result, the chancellor risked breaching the £9.9 billion ‘headroom’ – or surplus – within the fiscal rules the government left itself last October. 

Key announcements. Reeves announced cuts to welfare spending, an unpopular move with the parliamentary Labour party. Spending by government departments will be front-loaded even more in the first two years, with deeper cuts in the following three. The chancellor also announced measures to crack down on tax evasion and promised a more efficient public sector.

Market reaction. The initial reaction has been muted. UK government bonds were broadly unmoved, equity markets saw a slight uptick and the pound experienced a slight decline. Softer-than-expected inflation data in the UK may make it easier for the Bank of England to cut interest rates. This may have helped buoy investor sentiment.

Future challenges. Potential increases in US tariffs and other global events could significantly affect the UK's economic trajectory. If economic conditions show no sign of improvement, the UK may need to consider more tax rises or further spending cuts. There may also be a need to reassess the fiscal rules if the government continues to face challenges in meeting them.