On 3 March, will respond to updated
economic and fiscal forecasts from the Office for Budget
Responsibility (OBR). With limited economic developments since
the autumn, and with the Chancellor having pledged to avoid
policy measures unless there is a significant downturn, the
widespread expectation is that it will be a low-key affair,
without major policy announcements. Following the furious
speculation and heightened uncertainty in the lead-up to the last
few fiscal events, this period of relative calm is extremely
welcome.
The Spring Forecast is perhaps best thought of as setting the
scene for a potentially consequential Budget in the autumn.
Recent out-turn data in two areas – migration and tax revenues –
highlight risks which are unlikely to crystallise into a major
problem at the Chancellor's Spring Forecast, but which could
create considerable fiscal challenges later in the year.
-
In the case of migration: the latest data show
net migration significantly below the OBR's forecast for 2025.
Previous OBR estimates suggest that a permanent drop in net
migration of 100,000 per year could increase its borrowing
forecast by around £10 billion per year in the medium term.
-
In the case of tax revenues: the OBR's
November 2025 forecast projected that persistent inflation and
real wage growth would push up tax revenue by £25 billion in
2029–30, through higher consumer expenditure and more
‘tax-rich' GDP growth. However, despite higher-than-expected
inflation and wage growth, tax receipts over 2025 were somewhat
subdued – though the most recent data, for January 2026, show
signs of an uptick.
In each case, the OBR will likely wait for more data before
making material adjustments to its forecast, just a few short
months on from the last one. But each issue has the potential to
put a dent in the forecast for tax revenues at some point in
future – including when performance against the fiscal rules is
formally assessed again this autumn – and these will be important
areas for discussion in the OBR's analysis.
Nick Ridpath, Research Economist at IFS and an author of
the analysis, said:
‘The Chancellor looks set to follow through on her commitment to
hold only one fiscal event per year, which means next week's
Spring Forecast is unlikely to contain any big policy surprises.
However, a new forecast from the OBR may shine a light on
emerging risks to the medium-term borrowing outlook. A sharp
decline in net migration has the potential to reduce future tax
revenues. The OBR will likely wait for more data before updating
its medium-term outlook, but if recent trends do continue, the
Chancellor's fiscal rules could come back into focus by the
Autumn Budget.'
ENDS
Notes to Editor
Looking ahead to the Spring Forecast is an IFS briefing
by Nick Ridpath and Ben Zaranko.
The briefing is available to
read here on the IFS website
