Spring Statement Forecasts 1.1% Growth This Year

Industry News

UK economic growth is being downgraded, now forecast to be 1.1% this year, according to the Chancellor Rachel Reeves’ Spring Statement. In 2027 and 2028 it is forecast as 1.6% followed by 1.5% in the two subsequent years.

Based on updates from the Office for Budget Responsibility (OBR), inflation is expected to drop to the target 2% and unemployment to peak at 5.3% – both this year.

The Statement’s figures were arrived at before the Iran conflict started on Saturday, which is expected to drive up oil and gas prices.

As expected, no new measures were announced. The Chancellor pointed to spending already committed – £13 billion for capital infrastructure over the next five years.

The government is bringing forward a £625 million package of skills measures to address large-scale skills shortages in the construction sector.

£2 billion for social and affordable housing is confirmed in the 2026-27 period.

The OBR says that the planning reforms included in the government’s National Planning and Policy Framework (NPPF) will lead to 170,000 additional homes built over the forecast period. This increases the level of real GDP by 0.2% by 2029-30, adding £6.8 billion to the economy.

The OBR is also forecasting a £120m+ gain by 2030 from the Making Tax Digital rollout to those with incomes over £20,000 from 6 April 2028.

From the Building Safety Levy on new residential developments the OBR forecasts £345m+ will be raised by 2030.

INDUSTRY COMMENT

Expected More

John Wilkinson, COO at BAM UK & Ireland

John Wilkinson, COO at BAM UK & Ireland, commented: “The construction industry was expecting much more from the Chancellor’s Spring Statement including an update on Britain’s planning system. Britain is currently at a crossroads in how it builds, and with the urgent need to start building better, clarity on the reforms to the planning system are essential.

The Autumn Budget last year injected a sense of optimism into the construction industry, sparking many conversations around how the current planning system is fragmented and how these new improvements are welcomed. The introduction of the Planning and Infrastructure Bill in December last year was also momentous, however we are yet to see the full benefits this has to offer.

“We know infrastructure delivers significant economic returns of £3 for every £1 invested. For any government serious about growth, the case is unambiguous. Yet when it comes to delivering significantly important projects that benefit the UK, these projects can be held off for years due to red tape and disputes, even when the net effect is positive for Britain as a whole.”

Difficult Backdrop

Professor Noble Francis, CPA Economics Director

Noble Francis, CPA Economics Director, said: “The Chancellor’s Spring Statement was always expected to be low profile, with little in terms of new policy, especially compared with the Autumn Budget in November. However, the recent, escalating situation in the Middle East provided a very difficult backdrop, overshadowing the fiscal update.

“The situation in the Middle East means that the OBR inflation forecast and GDP forecasts are already too optimistic. This is clearly concerning, as the OBR revised down UK GDP for 2026 from 1.4% to 1.1%, even before accounting for the Middle Eastern conflict on growth, inflation, and delays to interest rate cuts. As a result, the OBR’s forecasts are highly likely to be revised down again at Autumn Budget 2026.

“One noteworthy point was that the OBR forecasts the low point in house building will be next financial year (2026/27), after which it expects house building to rise very sharply. However, despite this, it still forecasts only 1.3 million net additional dwellings in the UK over the 5-year Parliament. The government’s 1.5 million target is for England only over 5 years, and the OBR forecast is equivalent to 1.1 million net additional dwellings in England. So the OBR forecasts that the government will miss its house building target by 400,000 homes or 26%.”

Practical Measures Needed

Brian Berry, FMB Chief Executive

Brian Berry, Chief Executive of the FMB said: “Today’s Spring Statement was a missed opportunity to deliver the decisive action the construction industry urgently needs. While the Chancellor focused on reiterating previous announcements, small builders were left waiting for the practical measures that would unlock growth, boost housebuilding, and drive progress on retrofitting the UK’s homes.

The Chancellor’s recognition that more needs to be done to get young people into apprenticeships and employment was welcome but the industry has heard similar promises before. Without clear policy detail, commitment to funding, and a long‑term plan to support SMEs, warm words do not translate into real jobs or skills.”

“This Spring Statement could have set out concrete steps to support small and medium-sized builders to deliver the homes the country desperately needs, accelerate energy‑efficient retrofitting, and introduce a robust licensing system to raise standards across the industry. Instead, it was another chance for real progress that has been allowed to pass by.”

Uncertainty Remains a Significant Constraint

Karl Horton, Data Services Director at BCIS

Karl Horton, Data Services Director at BCIS, said: “Against the backdrop of escalating conflict in Iran, much of the current uncertainty affecting markets lies beyond domestic policy control, yet uncertainty remains a significant constraint on investment.

“Weaker growth expectations for 2026 and a looser labour market are more likely to continue tempering demand.

“While it’s too early to draw firm conclusions, a spike in energy prices, such as the increases reported in the oil and gas markets this week, could see contractors and subcontractors paying more for transport and materials. This would place upward pressure on tender prices and could constrain project viability or delay investment decisions.

“The Chancellor welcomed higher-than-expected reductions in inflation and borrowing costs. However, the OBR notes that its forecast closed before conflict in the Middle East escalated, potentially outdating new forecasts before they were published.

“For now, the government’s housing and infrastructure commitments remain in place but scope for additional, fiscal support or rapid delivery seems restricted. Any deterioration in the growth outlook, or sustained increase in energy prices, could quickly place pressure on spending plans, and reduce the likelihood of a rapid uplift in construction output.”