Spring Statement 2025: What It Means for Your Budget and the UK Economy

Chancellor Rachel Reeves’ Spring Statement 2025 has unveiled a mix of changes to welfare, public spending, and economic forecasts that could impact your financial planning in the years ahead. Here’s what UK households need to know.

Economic Forecasts: Modest Growth, Higher Inflation in Short Term

The Office for Budget Responsibility (OBR) has revised its projections for the UK economy, painting a mixed picture for households trying to manage budgets, savings, and debt.

• Growth Forecasts: Economic growth for 2025 has been downgraded from 2% to 1%, suggesting a slower recovery than previously hoped. However, there’s a slightly more positive outlook beyond that, with growth expected to average around 1.8%-1.9% annually through to 2029.
• Inflation Outlook: Inflation is now expected to average 3.2% in 2025, up from the previously forecast 2.6%, before falling back to 2.1% in 2026 and reaching the government’s 2% target by 2027.

💸 What this means for savers and investors:
Higher inflation can erode the real value of your savings, particularly if your money is sitting in low-interest or non-interest-bearing accounts. However, if you hold cash in high-interest savings accounts or fixed-rate ISAs, you may benefit in the short term—some savings rates could remain elevated while inflation stays above the Bank of England’s target.

For those with cash in investment accounts, it’s worth reassessing your portfolio. Inflation tends to reduce purchasing power and may impact the performance of fixed-income assets like bonds. Some investors turn to equities or inflation-linked securities during such periods, but remember: this is not financial advice—always speak to a professional before making changes to your investments.

🏠 Impact on mortgages and borrowing:
If you have a variable-rate mortgage or are due to remortgage soon, inflation could push interest rates higher—or keep them elevated longer—as the Bank of England tries to control price rises. That means monthly repayments may increase, squeezing disposable income. Fixed-rate mortgage holders are shielded in the short term, but may face higher rates when their current deal ends.

📌 Planning Tip:

• Lock in competitive fixed savings rates while they remain attractive.
• Review your investment mix in light of inflation.
• Consider speaking with a mortgage broker if your fixed term ends within the next 12–18 months to explore early options.

Public Services and Job Cuts: Efficiency Push in Government

The Chancellor announced a significant streamlining of public services:

• 15% cut in administrative costs across government departments by 2030.
• This includes plans to eliminate around 10,000 civil service jobs, mainly in HR, policy, communications, and office management roles.

Changes to Universal Credit and Disability Benefits

If you’re currently receiving or planning to apply for government support, several changes will come into effect over the coming years that could affect your household income.

• Universal Credit Standard Allowance Update: The standard rate will rise to £106 per week by 2030, slightly lower than the previously planned £107.
• Health-Related Universal Credit Support: For new claimants, the health-related element of Universal Credit will not only be halved from April 2026, as previously announced, but also frozen in cash terms until 2030.
• Existing Claimants: If you’re already receiving health-related payments, those will also be frozen at current levels until 2030.
• Personal Independence Payment (PIP): From November 2026, a stricter eligibility test will be introduced for PIP, the main disability benefit.
• Incapacity Benefits: From April 2026, existing payments will be frozen at £97 per week, with additional top-up support only for the most severe conditions. Notably, under-22s will no longer qualify for this top-up.

Defence Spending Rises – Funded by Overseas Aid Reductions

Military spending will see a boost:

• An extra £2.2bn has been pledged for next year, on top of a previously announced £2.9bn rise.
• This brings defence spending to 2.36% of national income in 2026, aiming for 2.5% by 2027.
• The increase will be funded partly by cutting overseas aid from 0.5% to 0.3% of national income in 2027 and dipping into Treasury reserves.

⚖️ No Direct Impact on Households: While these changes won’t affect personal taxes or benefits directly, they reflect government priorities and where funds are being reallocated.

Planning System Reform: Small Boost to Economic Growth

One interesting footnote: changes to the planning system in England are expected to add 0.2% to GDP by 2030, according to the OBR. While this is a modest number, any structural change that enables better infrastructure or housing access could benefit savers in the long term.

🏠 Homeowners & Investors Take Note: Planning reforms may create opportunities for local developments or property investments over time. Keep an eye on how these changes unfold in your region.

Final Thoughts: What You Should Do Next

This year’s Spring Statement is more about long-term shifts than immediate give-and-take for consumers. For UK households, the key messages are:

• Review your benefits situation and check how freezes or stricter eligibility might affect you.
• Expect inflation to remain above 3% this year, and adjust savings goals accordingly.

As always, this article is for informational purposes only and does not constitute financial advice. If you’re unsure how these changes affect your personal finances, it’s best to consult a qualified financial adviser.