2026 Spring forecast

You may have wondered what all the fuss was about with yesterday’s Spring Forecast.

Unlike the Autumn Budget, which is the government’s main fiscal event packed with tax and spending decisions, the Spring Forecast is essentially an economic update. It tells us how the UK economy is expected to perform based on the Office for Budget Responsibility’s (OBR) latest predictions, but without the big policy changes or new tax measures you normally see in the Autumn.

Because there’s a lot of commentary circulating, we’ve pulled together a brief, easy-to-read summary of the key points that matter most to individuals and businesses. Our aim is to give you the essentials quickly, clearly, and without jargon.

Key points

Economic Growth

UK GDP growth for 2026 has been revised down to 1.1%, from the previous 1.4% forecast. Growth is expected to improve to around 1.6% in 2027 and 2028.

Inflation

Inflation is expected to fall to 2.3% in 2026, moving closer to the Bank of England’s 2% target, and stabilising at 2.0% from 2027 onwards.

If inflation continues to fall, interest rates may decline in late 2026 or early 2027, which will help reduce mortgage and business borrowing costs. However, the forecast was finalised before oil and gas price spikes linked to the escalating Middle East conflict. This means inflation could end up higher than expected.

Unemployment

Unemployment may rise to 5.3% in 2026, then ease back to 4.1% by 2030. Forecasts show a cooling labour market, with young workers particularly affected and youth unemployment nearing an 11 year high.

Borrowing & Debt

Government borrowing is forecast to fall gradually through to 2030, supported by higher than expected tax receipts. A financial buffer of £23.6bn has been built into the public finances.

The OBR reports that the Chancellor now has nearly £24bn of headroom under fiscal rules — a significant increase since Autumn.

Living Standards

Real wages have recently been rising and are expected to continue improving gradually. Benefits and pensions also rise, including a 6.7% uplift to Universal Credit and a 4.8% rise in the State Pension.

Wealth Planning: Minimising the Impact of “Fiscal Drag”

When tax thresholds are frozen, the moment you receive income can make a real difference to how much tax you pay. By planning the timing of bonuses, dividends, or pension withdrawals, you can help preserve valuable allowances. Especially the Personal Allowance, which starts to reduce once income exceeds £100,000.

For example:

Bonuses – If a bonus pushes your total income above a threshold this tax year, you might pay a higher rate of tax or trigger the tapering of your Personal Allowance. In some cases, asking for it to be paid after 6 April could keep you in a lower tax band and save you money.

Dividends – Company owners can choose when dividends are declared. Spreading dividends across tax years or aligning them with unused allowances may reduce how much is taxed at the higher dividend rate.

Pension withdrawals – Taking too much from your pension in a single year can push you into a higher tax bracket. Phasing withdrawals or timing them in years where you have lower income can help reduce unnecessary tax.

In short, small adjustments to when you receive income can prevent you from drifting into higher tax bands created by fiscal drag, helping keep more of your allowances intact.