UK growth forecast downgraded and unemployment will peak this year, chancellor reveals

The UK's economic forecast has been downgraded for 2026 but will then improve - and unemployment will peak this year, the chancellor has revealed.

Giving her spring statement in the House of Commons, Rachel Reeves said gross domestic product (GDP) will now grow "slightly slower in 2026" than forecast at November's autumn budget, but will increase by more than was expected in 2027 and 2028.

Ms Reeves also said unemployment is set to peak later this year, after already rising, but will fall from 2027-2030, ending at 4.1%, lower than it was in 2024.

The chancellor, who had promised a low-key statement, said the Office for Budget Responsibility's (OBR) forecast shows that Labour's choices "are starting to pay off".

She said GDP per capita is now set to grow "more than was expected" in the autumn budget, with growth of 5.6% by 2029.

"After accounting for inflation, people are forecast to be over £1,000 a year better off per year," Ms Reeves said.

She acknowledged the situation in the Middle East but did not address the potential for that to disrupt the economy, and the forecast has not taken that into account.

The chancellor used the spring statement, which only lasted 23 minutes, to hit out at opposition parties, criticising the Conservatives, Reform, the Lib Dems and the Greens - to whom Labour just lost the Gorton and Denton byelection.

Government borrowing lower

Ms Reeves also revealed the OBR has forecast government borrowing will be £18bn lower than its November prediction.

"We are set to borrow less than the G7 average," she said.

It was the first time in the OBR's 16-year history that it did not provide an assessment of whether the chancellor was meeting her fiscal targets and how much headroom she has.

Net migration to reduce

The forecast for net migration (the difference between immigration and emigration) was a lot lower than previously predicted, with the estimate of 295,000 being reduced to 235,000.

This means fewer tax receipts and spending, which could lead to lower GDP - however, it was not as much of a reduction as predicted earlier this year when it was expected to drop to 204,000.

While the chancellor made good on her promise not to announce any new policy, she said she would "set out three major choices that will determine the course of our economy into the future" in a fortnight's time at her Mais lecture, an annual banking and finance event where successive chancellors have set out their economic philosophy and policies.

She said she would reveal how the government will strengthen global relationships, back innovation and harness the power of AI, and transform "our economic geography".

'Is that it?'

Conservative shadow chancellor Sir Mel Stride asked "is that it?" in response to the statement, as he called it "utter complacency" and accused her of having "nothing to say and with no plan".

"She speaks of stability," he told the Commons.

"What planet is the right honourable lady on? She has lurched from putting up taxes to destroying growth, to destroying headroom, to coming back to putting up more taxes, more growth destroyed.

"Round and round we go. Like a fiscal twister ripping up everything in its path."

'Living in La La Land'

Lib Dem Treasury spokesperson Daisy Cooper said: "There's no painting over the cracks: the country is paying the price for two anti-growth Labour budgets and the chancellor today has wasted a chance to turn things around.

"People are desperately worried about the cost-of-living crisis spiralling after Trump's illegal military action in Iran. The government must act now to tackle the cost of living, get Britain growing again and protect our country."

Reform's Treasury spokesman, Robert Jenrick, accused the chancellor of living in "La La Land".

"People are struggling under rising bills and taxes and she has the temerity to boast her plan is working," he said.

"Reeves didn't have a single policy to fix things. Nothing to boost growth, which was downgraded again today. Nothing to defuse the benefits bomb. And nothing to bring back well-paid jobs, even as unemployment is now set to reach a 10-year high. She's out of ideas and authority."

(c) Sky News 2026: UK growth forecast downgraded and unemployment will peak this year, chancellor reveals