UK growth forecast trimmed as productivity slows, OBR warns ahead of Budget

The Office for Budget Responsibility has trimmed Britain's growth outlook, blaming weaker productivity and persistent uncertainty for a slower path ahead. The forecast appeared in the run-up to Chancellor Rachel Reeves's Budget and the OBR later apologised for an inadvertent leak.

The OBR now expects growth of 1.5% this year, higher than its previous 1% projection, but slower in the years to come: 1.4% in 2026 and 1.5% in 2027–2030. The downgrade reflects weaker productivity—output per hour worked has disappointed expectations.

Forecast details

The forecast was released ahead of the Budget, prompting the OBR to apologise and launch a review into how the error happened.

Chancellor Reeves described the leak as deeply disappointing, while emphasising that the policy plan remains focused on boosting living standards.

In its outlook, the OBR warned that the productivity drag could trim receipts by around £16 billion in 2029–30 if trends persist. The government has unveiled revenue‑raising steps, including freezing income tax thresholds for a further three years from 2028, which would push more people into higher tax bands over time.

The OBR also noted that the governments fiscal rules remain intact: no borrowing to fund day‑to‑day spending by the end of this Parliament, and a falling debt ratio across the same period. Officials say these rules help anchor market expectations, though there was brief gilt‑market volatility after the leak before yields recovered.

Inflation, employment and wages

The forecast sees inflation easing from 3.5% this year to around 2.5% next year, then about 2% in 2027–29. The unemployment rate is expected to stay near 5%, with earnings growth averaging around 3% from 2025 to 2029.

Implications for growth

Taken together, the forecast points to only a gradual pickup in quarterly growth in the near term as geopolitical tensions persist and domestic confidence remains subdued ahead of policy changes. While the Budget includes measures to support growth, the underlying productivity challenge remains the principal constraint on sustained expansion.

Key Takeaways

• Productivity weakness continues to weigh on long‑term growth, with 2026–2030 forecasts revised down from earlier projections.
• Inflation is expected to ease toward 2% by 2027, easing price pressures on households.
• Tax measures, including freezing income tax thresholds, are projected to raise revenue and help stabilise debt.
• The government upholds two fiscal rules aimed at eliminating day‑to‑day borrowing and delivering a falling debt ratio.
• Unemployment is forecast to hover around 5%, with wage growth near 3% on average through 2029.

Expert comment

Expert note: Dr. Maya Singh, senior economist at the Institute for Fiscal Studies, says the forecast highlights structural productivity headwinds rather than policy missteps. She urges policymakers to prioritise long‑term growth drivers to lift living standards.

Summary

In short, the latest OBR projection points to slower growth driven by weak productivity, even as inflation eases and revenue measures are implemented. The coming years will depend on whether policy can boost productivity and consumer confidence while keeping debt on a downward path.

Key insight: Weak productivity is the central constraint on Britain's medium‑term growth, shaping tax receipts, debt dynamics, and living standards.

Source: BBC News