Brazil on the rise: what to know in 2026

Projections from the OBR showed inflation is expected to decline to 2.3% by the end of 2026, below what was projected in the Autumn Budget forecasts, when inflation was expected to finish the year at 2.5%. However, these estimations were based on data up to the end of January and therefore do not capture the recent increase in oil and gas prices following the rising tensions in Middle East. According to our estimations, if prices for oil and gas evolve as currently expected by futures, this would add between 0.2%-0.3% to annual UK inflation by the end of 2026.

The Chancellor reiterated that the current budget is expected to be in surplus by 2028-2029 (see Chart 2), with the headroom against the fiscal rule increasing from £21.7bn to £23.6bn. Debt levels, as percentage of GDP, is expected to decline to 82.2% by the end of the forecast period in 2029-2030, which is consistent with the objectives set by the government.

Are we headed for another policy U-turn?
However, the government’s plans to reduce the deficit are only expected to materialise in the last years of the forecast. This poses some additional risks. With spending still expected to remain elevated in the short-term, plans to deliver a budget surplus could be derailed due to policy changes or shocks to the economy. Starmer’s government has been characterised by changes in policy direction which have undermined its ability to reduce the deficit earlier than expected. Therefore, if economic growth continues to dwindle, then we would expect yet another U-turn in spending policy.

The effects of announced tax hikes at the last Budget are expected to increase the taxes as percentage of GDP from 36% to 38%, above the G7 average of 36%. With spending expected to increase in areas such as defence, education, welfare and the ageing of populations, the expectations for a budget surplus are hard to envisage at this point.

Overall assessment and key risks
In conclusion, Reeves’ predictable and uneventful Spring Statement was received positively by analysts. The government’s key priority remains economic growth, based on efforts to simplify the planning system and higher public investment. The Chancellor emphasised the actions taken to reduce energy bills from next April, which will lower the contribution of energy prices to inflation. This will allow the Bank of England to continue cutting interest rates, which will be key for the government’s plan to stimulate private investment.

The outlook from the OBR was mixed, with lower growth and higher unemployment expected in the short-term, but a better outlook for the coming years, based on expected improvements in productivity and a positive contribution from government spending. However, risks remain tilted to the downside, due to the impact of the conflict in Middle East on energy prices, disruptions on trade policy, the difficulty to boost productivity growth and weak labour market.

A boring Statement is probably welcome in the context of global uncertainty. The private sector will appreciate the continuity in the government’s direction on tax and spending, at least until the next Autumn Budget. But the Chancellor will need to deliver policy results in the short-term before markets lose confidence on their ability to boost long-term growth and control spending.