General view of the Parliament Building in London, England, March 28, 2019.
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The British Labor government will face rigorous scrutiny on Wednesday as Finance Minister Rachel Reeves prepares to update MPs in the UK’s spending and tax plans for her and the country’s economic outlook, but is unsettling in the UK
Reeves is expected to announce billions of pounds of spending cuts to make up for budget shortfalls due to increased borrowing costs since the first fiscal plan released last fall.
The Finance Minister has vowed to stick to his self-imposed “fiscal rules” set out in his “Autumn Budget” last October: to ensure that daily expenditures are met through tax revenues and to reduce the share of public debt as economic output by 2029-30.
British Finance Minister Spring Statementto be proposed in Parliament at 12.30 pm London time, will be delivered along with the latest economic forecasts from the Office of Budget Responsibility (OBR) of the country’s independent public finance regulator.
OBR is It is reported that To lower the UK’s 2025 growth forecast and cut its top 2% estimate in half, its lower output puts upward pressure on government borrowing requirements and forces Reeves to reduce public spending by about £10 billion ($12.96 billion).
“A changing world”
Reeves has been under increasing pressure to cut public spending, further increase taxes, or amid rising borrowing costs in the UK, analysts say this has increased the cost of borrowing “fiscal net”.
The UK is also facing the ghost of temporary rising inflation. According to the Bank of England,as well as Continuous economic slowdown In recent months.
Reeves has been widely hinted at changes in the economic context since the last budget statement, and the uncertainty of U.S. President Donald Trump’s trade tariffs, believed to be inflation, also brings headwinds to the economy.
The Treasury Department issued a press release Tuesday saying Reeves promised in her spring statement that it would “enable economic growth, protect workers and ensure our national security.”
Reeves will also warn that “we must develop rapidly in a changing world” and will take a significant step next year on a large 2.5% of GDP on £2.2 billion ($2.6 billion) next year, a significant step next year.
British Prime Minister Keir Starmer met with British Chancellor Rachel Reeves a few days before the announcement of the new Labour government’s first budget on Downing Street, London, England on October 28, 2024. Starmer and Reeves met early on Wednesday’s budget.
WPA Pool | Getty Images News | Getty Images
Emily Nicol and Edward Maling of Daiwa Capital Markets noted that Reeves’ statement is expected to address “fiscal headroom erosion.”
“At the October budget announcement, OBR expected a budget surplus of about £10 billion in FY29, representing what the government calls “headroom” to meet the binding target of the current budget balanced on that date to that day. Today’s figures suggest that this has exceeded,” they said. ”
“As economic growth recently falls below expectations for OBR, OBR may cut its 2.0% Y/Y GDP forecast for 2025 – overinvestment in public lending and tax revenues may be partly due to cyclical weaknesses, which may be correct.”
However, economists warn: “About the basis points of about 20-40 basis points on most curves since mid-October will be considered structural and will be viewed along with some other slips – without offsetting the new policy – that may have eroded the government’s roof space.”
Spending cuts
The erosion of the Treasury fiscal netting has prompted economists and analysts to support Reeves’ announcement of cutting costs billions of pounds on Wednesday.
The government has marked the plan Cuts on welfare spending at £5 billionand by 2030, reduce administrative costs of civil servants by 15%.
“The spring statement will increase the increase in borrowing over the next two years, mainly due to higher interest payments. The updated forecast for the OBR will require the Prime Minister to cut around £10 in spending around £1 billion to preserve her former fiscal net,” Barclays strategist Moyeen Strategist Moyeen and Uk Emancist Jack said in an analysis last week.
They added: “These savings are likely to focus on welfare spending and negative public sectors and be postponed until the second half of the year in Parliament, after 2027.”
British Finance Minister Rachel Reeves spoke on January 22, 2025 at the Squawk Box of CNBC outside the World Economic Forum in Davos, Switzerland.
Gerry Miller | CNBC
Analysts at geopolitical consulting firm Teneo agreed that despite the October fall budget last October, a targeted tax increase for public services, Reeves’ next statement “may need to cut benefits, but be aware that any other (even limited) tax increases should be noted. ”
Teneo analysts added: “After the controversial national insurance contribution rate hike in October, some relief from employers can also arrive. Overall, as searches for growth and productivity continue, the statement will highlight limited fiscal space, under pressure to improve public services and greater defense spending.”
A Treasury spokesman told CNBC on Tuesday that the Treasury “will not comment on speculation about the OBR forecast.”
The spokesman added: “The Prime Minister also made it clear that she would not repeat the October budget and would now focus on improving the economy through spending reviews and eliminating waste in public spending.”
Reeves repeatedly commented that she will not abandon her fiscal rules or raise taxes further at the moment, although economists expect more taxes may be imposed later this year.
She said last fall, the British business community exerted widespread shock in the UK business community, when she targeted her tax burdens for businesses and employers, stuffed holes in public finance and allowed investment in public services.
British industry leaders warn The Ministry of Finance’s financial plan However, investment, employment and growth may be weighed.
Reeves’ defense of taxes is a “one-time” measure, necessary to increase investment in public services. She repeatedly said that increasing growth in the UK was her priority and vowed that she would not relax her financial rules or goals she implemented on the department.
