By David Prosser
Chancellor of the Exchequer Rachel Reeves kept an important promise when unveiling the Government’s Spring Statement this week. But she also found herself overtaken by events. The result was that Reeves’ announcements may not have quite the impacts on savers, borrowers and investors than would otherwise have been expected.
The promise kept was not to use the Spring Statement to unveil new policy measures – particularly new spending pledges or tax changes. Rather than unveiling a second critical “fiscal event” following December’s Budget, Reeves presented the new official economic forecasts for the UK from the Office of Budget Responsibility, framing them in the context of Labour’s goal of achieving growth and stability.
So far, so good. The problem for the Chancellor was that both she and the OBR had done most of the work on the Spring Statement prior to the decision of the US and Israel to go to war in Iran. The OBR inserted a last-minute warning that conflict in the Middle East could have significant economic impacts on the UK, but until we see how long the war lasts – and to where it spreads – those impacts are almost impossible to quantify.
What the Spring Statement means for your finances
The big takeaway from the Spring Statement is that the OBR now thinks the UK economy will grow less quickly this year than it had previously forecast. It now predicts the economy will be expand by 1.1% in 2026, rather than the 1.4% it was expecting. Its growth forecasts for 2027 and 2028 are a little more optimistic – at 1.6% in both years – but far from exciting.
The OBR also forecasts that by the end of this year, inflation will fall from the current level of around 3% to the 2% rate that the Bank of England targets. In theory, this falling inflation rate, allied to lower growth expectations, should pave the way for further interest-rate cuts. That would be good news for mortgage borrowers – particularly those with variable-rate loans – but less welcome for savers with Cash Individual Savings Accounts (Isas) and other accounts.
The fly in the ointment here is that events in the Middle East may lead to a very different outturn on inflation. Already, we have seen a sharp spike in the oil price and, even more so, in gas prices. If the war is prolonged and those increases are sustained, higher energy prices will inevitably push up inflation, making it tougher for the Bank of England’s Monetary Policy Committee to reduce interest rates.
Indeed, before the attacks on Iran, financial markets put the chances of an interest rate cut in March at about 90%; when war broke out, that fell to just 20%. The markets are no longer pricing in the likelihood of there being two interest rate cuts before the end of the year.
It’s also possible that the Middle East war could adversely affect the UK’s public finances. If growth is slower than expected because of the conflict, tax receipts will also undershoot. And if the Government is forced to intervene to mitigate some of the impacts of the crisis – to provide help with energy bills, perhaps – that will drive up spending.
The Spring Statement confirmed the tax increases the Chancellor has previously announced – including freezes on income tax thresholds, higher taxes on dividends and income from property, and the extension of inheritance tax to pension assets. Reeves kept her pledge not to unveil further tax rises, but if the public finances now deteriorate, that may not hold.
How to respond
These are uncertain times, but there are still some sensible steps people can take in the wake of the Spring Statement. The key is not to make hasty decisions, particularly amid the worries of what’s going on in the Middle East. There is no need to panic.
It does make sense for savers and borrowers to make sure they’re getting the best possible deals right now.
If you have cash savings in the bank, are you earning a competitive rate of interest? For example, United Trust Bank currently pays interest rates of up to 3.9% AER/gross* on its variable-rate accounts (reducing to 3.75% from the 18th March) but it could pay to fix your interest rate, with similar deals currently available on fixed-term bonds (minimum balances of £5,000 apply); these will continue to pay the headline rate, even if the Bank of England decides to cut rates.
In addition, have you used your cash Isa allowance for the 2025-26 financial year, which ends on 5 April? This year and next, you can use cash Isas to shelter up to £20,000 of savings from income tax –. From April 2027 onwards, the Cash Isa limit is dropping to £12,000.
Similarly, on mortgages, now could be a good time to shop around for a better deal, particularly if your fixed or discounted rate is coming to an end, or has already expired. Take professional advice on your options if you’re not sure how to proceed – but a remortgage could reduce your monthly repayments, freeing up valuable cash for the household budget.
Indeed, now is also the moment to review other financial commitments in order to manage your spending – use price comparison sites to see if you can get better deals on home energy, utilities and telecoms, as well as on insurance. Dump subscriptions you’re not using. The more cash you can save, the bigger the buffer you can build to protect yourself from risk this year.
*AER stands for Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year.
Although this article may contain helpful information and tips, these are not personal advice. You may wish to seek advice from a financial advisor if you are unsure what’s best for your own personal circumstances.