Reeves to deliver spring statement as traders scale back Bank of England rate cut bets

Rachel Reeves has said her economic plan is “the right one for Britain” as she prepares to deliver her second spring statement.

Ahead of addressing the Commons at 12h30, Reeves said on X:

Expectations for interest rate cuts from the Bank of England have continued to retreat, with swap markets no longer fully pricing in a quarter-point reduction this year and raising the prospect that the central bank’s easing cycle may already have run its course.

Traders are assigning roughly an 85 % probability that the BoE will deliver a single cut by December, according to pricing implied by swaps contracts. The likelihood of a move at this month’s meeting has dropped sharply to about 20%, down from 90% on Friday.

The repricing has rippled through government debt markets. Two-year gilt yields, which are particularly sensitive to shifts in interest rate expectations, have climbed 0.16 percentage points to 4.42 % as investors adjust to the possibility that borrowing costs could remain higher for longer.

Petrol retailers have warned that pump prices will need to rise following the recent jump in crude oil prices.

Brent crude, the international benchmark, was up as much as 6% on Tuesday morning, tipping back above $80 a barrel, with some analysts warning that prices could hit $100 if the conflict in the Middle East continues.

Gordon Balmer, executive director of the Petrol Retailers Association, said: “The conflict in the Middle East has increased the wholesale cost of petrol and diesel, which will mean pump prices will have to go up. Rising fuel prices hurt the economy by driving higher inflation, impacting already hard-pressed household budgets.

“To help motorists and businesses, I am today writing to the chancellor urging her to abandon the planned fuel duty increases.”

SNP economy spokesperson Dave Doogan added: “With real fears that prices at the pump are now set to soar because of the situation in the Middle East, instead of stubbornly doubling down, the chancellor needs to scrap her price hike plans before motorists face a devastating double hit. Oil prices are already spiking. The last thing motorists and businesses now need is another damaging tax hike from the Labour Party.”

Reeves announced last year that the long-held fuel duty discount would be scrapped from September. Prices are set to rise by 1p a litre, followed by two further increases of 2p each in subsequent years. Cancelling the rise would leave the chancellor with a shortfall in her revenue forecasts.

Meanwhile, Donald Trump told Keir Starmer to reopen the North Sea to combat soaring energy prices as the conflict in Iran entered a fourth day. “Open up the North Sea. Immediately,” he told The Sun.

Rupert Thompson, chief economist at asset manager IBOSS, said the forecasts could be the least important development of the day.

The Office for Budget Responsibility will release a new set of economic forecasts, which are expected to show little change in the government’s fiscal headroom.

With no immediate pressure to raise revenue, unlike in the last two budgets, Rachel Reeves is expected to stick to her plan of holding only one major budget a year and keep policy changes to a minimum.

Kathleen Brooks, research director at XTB, said the spring forecasts are likely to be overshadowed by events in the Middle East.

“There could be some good news on the public finances, with borrowing for this fiscal year expected to be slashed by 20%. The bond market has benefitted from this in recent weeks, and in February, Gilts were the top performing global sovereign bond.

“A subdued growth outlook is also expected, and the OBR may sound a warning on the unemployment rate. A rapid increase in unemployment could hurt the UK’s fiscal outlook and the amount of available headroom if it limits tax receipts and also increases the bill for unemployment benefits.”

The National Institute of Economic and Social Research (NIESR) said today that the spring statement comes amid a mixed economic backdrop.

“Inflation has fallen and government borrowing costs have eased, but unemployment has risen and the growth outlook has weakened,” said David Aikman, NIESR director.

He warned of the immediate risk of a renewed energy shock. “The conflict in Iran has pushed up oil and gas prices and disrupted shipping routes. If it persists, it will raise household bills and business costs in the months ahead, putting renewed upward pressure on inflation – and potentially interest rates.”

Aikman added that the uncertainty underlines the need for fiscal consolidation. “With debt still unsustainably high, the priority for the chancellor should be to build a credible medium-term plan to put the public finances on a more resilient path, with debt falling as a share of the economy over time.”

When the Labour government took office in July 2024, boosting economic growth became its top priority.

Many economists and politicians remain concerned that the UK economy is not expanding fast enough.

Gross domestic product, which measures all economic activity in the country, grew by 0.1% in the final three months of 2025, slightly below expectations, and by 1.3% over the whole year. In November, the Office for Budget Responsibility forecast 1.4% growth for 2026, but analysts now expect this to be revised down.

Inflation, the rate at which prices are rising, has cooled since peaking at 11.1% in October 2022, but remains above the Bank of England’s 2% target. Prices increased by 3% in the year to January, the lowest rate since March 2025, prompting expectations that the BoE may cut interest rates from 3.75%.

However, sustained rises in oil prices following strikes on Iran could push up fuel costs and other goods such as food, making the Bank less willing to lower rates.

Unemployment has been creeping higher, reaching 5.2% in the three months to December, the highest in nearly five years. Wage growth has slowed, though average pay excluding bonuses still rose at an annual rate of 4.2% in the same period, outpacing inflation.

In February, Reeves said 2026 would be the year the public began to see the benefits of Labour’s policies. “Is there more to do? Absolutely. But we’ve created the conditions for growth and I am confident this will be the year we will see the results of that,” she said.

Craig Rickman, personal finance editor at Interactive Investor, said: “This year’s spring statement is gearing up to be a low-key affair, with chancellor Rachel Reeves set to keep her pledge to restrict big policy changes to the autumn budget.

“That doesn’t necessarily mean the event, which is set to last less than half an hour, will fail to deliver any talking points. At the very least we should gauge how the previous budget’s policy measures, alongside the government’s watered-down inheritance tax reforms for farms and businesses, have impacted the Office for Budget Responsibility’s forecasts.

“The chief concern is that a pessimistic outlook could spark a repeat of the frenzied tax-hiking speculation we witnessed before the current government’s first two major fiscal events. But such an outcome from [today address seems unlikely for a couple of reasons. First, the decision to hold a late autumn budget in 2025 means only a few months have passed for the UK’s economic picture to notably improve or worsen.

“Second, while the data may offer clues on whether Reeves’s headroom has shrunk or grown, the chancellor announced last year that tracking progress against her self-imposed fiscal rules will be reserved for the autumn event.”

US and Israeli strikes on Iran on Saturday, followed by Iranian counterattacks across the Gulf just three days before the spring statement, are likely to overshadow the chancellor’s low-key event.

Iranian attacks on ships in the Strait of Hormuz, through which a fifth of the world’s oil and gas passes, have pushed oil prices to their highest level in about a year. Shipping companies have confirmed they will avoid both the Strait and the Suez Canal.

If the strikes continue, they could have knock-on effects on inflation, interest rates and commodity prices.

A prolonged disruption to this key shipping route could push oil prices higher, affecting petrol prices, utility bills, transport costs, and production costs, which would in turn put upward pressure on headline inflation.

Rising inflation from the conflict would make it less likely that the Bank of England will cut interest rates later this month, undermining the government’s hopes for looser borrowing costs.

Jemma Slingo, pensions and investment expert at Fidelity International, said: “Stubbornly high oil and gas prices could impact economies around the world. Specifically, they could be inflationary and disrupt plans to cut interest rates.

“The Bank of England is due to announce its next rate decision on 19 March. The bank’s Monetary Policy Committee has held several nail-biting votes in recent months, and conflict could complicate things further.

“For now, however, there is no certainty around what will happen to energy supplies or what this means for the global economy.”

No.

The chancellor has said she will not make any major announcements, although she could introduce minor changes to tax policy.

Such moves carry political risk, as she could be accused of using stealth taxes.

They could also leave her vulnerable to criticism from opposition parties and, as seen previously, potentially from members of her own party.

Rachel Reeves will use her spring statement to outline the latest economic forecasts from the Office for Budget Responsibility, which will be published shortly after she finishes speaking.

Despite ministers billing the event as low-key, it is a significant moment. The updated projections will offer the clearest indication yet of the impact of the autumn budget and the government’s broader economic strategy.

The Office for Budget Responsibility produces two sets of forecasts each year, assessing the outlook for growth and the public finances and judging whether the government is on course to meet its self-imposed tax and spending rules.

Reeves has set two fiscal rules: not to borrow to fund day-to-day public spending by the end of this parliament, and to ensure that government debt is falling as a share of national income by the end of the parliament.

The watchdog was thrust into the spotlight at the November budget when it accidentally published its assessment about 40 minutes before the chancellor rose in the Commons, effectively revealing key elements of her plans in advance.

Disruption to gas supplies in the Middle East poses a challenge for Britain, despite Qatar accounting for less than 2% of UK imports in 2024, owing to its impact on wholesale prices.

Brent crude, the international benchmark, climbed back above $80 a barrel overnight, with some analysts warning that prices could reach $100 if the conflict persists.

A renewed energy shock risks driving inflation higher, eroding consumer purchasing power, threatening growth and undermining Labour’s pledge to tackle the cost of living.

As economists at Investec explain: “The main economic consequence of higher energy prices would be to boost inflation.

“In the UK, illustratively, the current level of the oil price would, if maintained, add about 0.2%pts to headline inflation via higher petrol prices; and a sustained 40% shift up in natural gas price futures would boost this by a further 0.7%pts or so, via higher household utility bills.”

Analysts at DBS said the conflict raises “the spectre of stagflation”.

“While energy prices are nowhere close to the levels seen during the start of the Russia-Ukraine conflict in 2022, investors will probably be keeping a close eye on the extent and duration that energy supplies will be disrupted,” they said.

In her November budget, Rachel Reeves built £21.7bn of headroom against her fiscal rules, a move that helped reassure bond markets. Since the 2024 election she has raised taxes by £66bn in an effort to restore fiscal stability.

Although the chancellor retains a reserve to cushion households from higher energy costs later in the year if required, the Treasury says average household bills will fall by £117 from April and remain at that level for the following three months.

Rachel Reeves has pledged to hold only one fiscal event each year, the autumn budget, and will use Tuesday’s spring statement to deliver a brief address of about 20 minutes setting out updated forecasts from the Office for Budget Responsibility, the independent fiscal watchdog.

Treasury officials said the chancellor would not announce new policies or tax changes and would adopt a “confident” tone on the UK economy’s outlook.

Reeves is expected to postpone dealing with mounting pressures, including rising unemployment and a substantial shortfall in defence spending. Measures aimed at lifting the UK’s sluggish growth rate are due to be outlined in a separate speech later in March.