British Chancellor of the Exchequer Rachel Reeves leaves 11 Downing Street to deliver her Spring Statement in the House of Commons in London, Britain, on March 26, 2025. Britain's economy is now expected to grow by just one percent in 2025, down from the previous forecast of 2 percent, the country's finance minister said on Wednesday. (Xinhua/Li Ying)
LONDON, March 26 (Xinhua) -- Britain's economy is now expected to grow by just one percent in 2025, down from the previous forecast of 2 percent, the country's finance minister said on Wednesday.
Delivering her Spring Statement in the House of Commons, Chancellor of the Exchequer Rachel Reeves confirmed that the Office for Budget Responsibility (OBR), Britain's public finance watchdog, has downgraded its 2025 growth forecast in its latest publication.
SLUGGISH GROWTH AMID UNCERTAINTY
According to the OBR, roughly one-third of the downgrade reflects structural weaknesses, particularly in productivity. "The remaining two-thirds is due to what appear to be cyclical, temporary factors including higher interest rate expectations, increases in gas prices, and elevated uncertainty," the agency noted.
The OBR also warned that escalating global trade tensions could further dent growth. "If global trade disputes escalate to include 20 percentage point rises in tariffs between the USA and the rest of the world, this could reduce UK GDP by a peak of 1 percent," it said.
Recent data showed the economy contracted by 0.1 percent in January, signaling a weak start to 2025. However, Reeves emphasized that the OBR has upgraded growth projections for the following years, with the economy expected to expand by 1.9 percent in 2026, 1.8 percent in 2027, 1.7 percent in 2028, and 1.8 percent in 2029.
Meanwhile, the OBR now forecasts annual CPI inflation to rise from 2.5 percent in 2024 to 3.2 percent in 2025 - 0.6 percentage point higher than its October estimate.
FURTHER WELFARE CUT
As part of broader welfare reforms, Reeves announced that the Universal Credit Health Element (UCHE) - a benefit for people with limited work capability - will be halved for new claimants and then frozen.
The OBR said this means the UCHE will remain at 97 British pounds (124 U.S. dollars) per week for four years starting April 2026. New claimants after that date will receive 50 pounds per week, also frozen thereafter.
This measure follows last week's announcement to tighten eligibility for the Personal Independence Payment (PIP), which the OBR estimates will reduce the number of claimants by 800,000.
Overall, the government's welfare reforms are expected to cut spending by 4.8 billion pounds in 2029-2030. However, the chancellor also announced an increase in the Universal Credit Standard Allowance, which will rise from 92 pounds per week in 2025-26 to 106 pounds by 2029-30.
DEFENSE BUDGET BOOST
In what she described as a response to "an uncertain world," Reeves pledged an additional 2.2 billion pounds for the Ministry of Defence in the next financial year.
The chancellor said the government would also invest in emerging technologies, advanced manufacturing, a naval base in Portsmouth, and housing for military families - efforts aimed at strengthening the defense sector and making Britain "a defence industrial superpower."
Prime Minister Keir Starmer has previously committed to increasing defence spending to 2.5 percent of GDP by April 2027. (1 British pound = 1.29 U.S. dollars) ■
British Chancellor of the Exchequer Rachel Reeves leaves 11 Downing Street to deliver her Spring Statement in the House of Commons in London, Britain, on March 26, 2025. Britain's economy is now expected to grow by just one percent in 2025, down from the previous forecast of 2 percent, the country's finance minister said on Wednesday. (Xinhua/Li Ying)
British Chancellor of the Exchequer Rachel Reeves leaves 11 Downing Street to deliver her Spring Statement in the House of Commons in London, Britain, on March 26, 2025. Britain's economy is now expected to grow by just one percent in 2025, down from the previous forecast of 2 percent, the country's finance minister said on Wednesday. (Xinhua/Li Ying)
British Chancellor of the Exchequer Rachel Reeves leaves 11 Downing Street to deliver her Spring Statement in the House of Commons in London, Britain, on March 26, 2025. Britain's economy is now expected to grow by just one percent in 2025, down from the previous forecast of 2 percent, the country's finance minister said on Wednesday. (Xinhua/Li Ying)
