Chancellor hopes for better days ahead

The best that Chancellor Rachel Reeves could hope for from Wednesday’s Spring Statement was as little drama as possible.

Her principal objective was to demonstrate that she and the wider Labour Government are trying the best they can with an extremely difficult set of cards.

This would have been the same had it been a Conservative Chancellor at the despatch box.

So, there was lots of talk about global uncertainty, the looming threat of US tariffs and the unwavering commitment to operating within a stringent set of fiscal rules.

While there was a small ray of light with the news that UK inflation had fallen to 2.8%, giving the prospect of further cuts in interest rates, the other headline economic figures offered little optimism in the immediate term.

The Office for Budget Responsibility (OBR) has halved its growth forecast from 2% to 1% in 2025/26, while the UK’s tax burden will hit a record high of 37.7% of GDP next year and the UK’s debt pile will cost more than £100billion to service.

As Rachel Reeves had made clear in advance, this was a Spring Statement and not a Budget in line with her previously stated desire to return to a single major fiscal event in any one year.

However, the tone of the Chancellor’s speech left the impression that further tax rises may be inevitable later in the year when she delivers the next Budget.

That is why we will continue to advise clients accordingly about appropriate tax planning measures, most obviously in the areas of capital gains, pensions and maximising the use of ISA allowances.

The Chancellor and the wider Government will meantime hope that keeping to a reasonable spending envelope will enable the economy to slowly heal and grow.

For this to happen, the Government is hoping that traditional sectors such as housebuilding will start to deliver with a loosening of the planning regulations, while newer sectors such as artificial intelligence (AI) will provide game-changing growth if the technology’s uptake continues to advance at a rapid pace.

In terms of the short-term outlook, the next looming date in the calendar is April 2 and President Trump’s so-called ‘Liberation Day’ when he intends to introduce a wave of reciprocal tariffs on countries with high trade surpluses and barriers to US goods. Hopefully, the UK will be successful in leveraging the much vaunted ‘special relationship’ to limit the impact of any such tariffs on this country although Trump’s announcement of import taxes of 25% on cars and car parts entering the US from overseas was not a promising start.

The Trump Presidency, continuing geo-political turbulence and stubborn lack of growth in our own economy mean that further difficult times lie ahead before we can hope to see the better days that the Chancellor believes will come.

As we always remind clients, the UK and global economies continually ebb and flow, sometimes more dramatically than at other times, most recently with Covid and the resulting financial crisis. Such events only highlight the crucial importance of maintaining a long-term, balanced financial portfolio.