Spring Forecast 2026 - Episode two: what to expect from the OBR forecast

Get a clear and accessible breakdown of what to expect ahead of the UK’s Spring Statement on 3 March. Mark explores the purpose of the Spring Statement, what the Office for Budget Responsibility might reveal about the economy, and the key pressures shaping government decisions from tax receipts and public borrowing to inflation, growth and rising unemployment.

He also touches on the impact of wage and tax policy on employers, why youth unemployment is becoming a growing concern, and whether higher taxes risk holding back economic growth.

This short episode sets the scene before the Chancellor’s update and highlights what indicators to watch as the next budget approaches.

For more information on this topic and more, please visit www.mercia-group.com for further details.

Transcript

Hello everybody. It's Mark Morton again sitting here week before the spring statement. Just looking at sunshine, actually not raining and not forecast to rain, which in its own right is a rather unusual occurrence in the last few months. So, sitting here looking at a beautiful spring day. 

What are we expecting in the spring statement, and I suppose, what is the spring statement? So, what we've got on the 3rd of March is the chancellor's update, essentially from the office of budget responsibility on the state of the economy, basically. Now, this government has made this point a couple of times. 

That actually they do not intend to make major. Certainly tax announcements in spring statements, spring forecasts that was the intention of the previous government. But obviously events such as the pandemic, for example, change that idea To be fair to the Chancellor last year. She broadly managed that there were no big policy decisions, but there were HMRC updates that came out as part and parcel of the spring statement. 

The interesting point, I suppose this time round is will the spring statement be leaked before the actual time of the spring statement? For those of you who dunno, there has been a full inquiry into this, which basically said, the budget was leaked and probably the spring forecast immediately before the budget. 

But it was difficult to tell if anything else had been leaked because ultimately records only went back 12 months. Can you believe? And interestingly, the reason for the leak is the people publishing it were using essentially the same. URL he said as if he knew anything about this, it was saying WW OBR dot, and then it would say. 

March, spring forecast or November budget. So people have merely been sitting there trying to transpose November 25 budget into November 26th, budget, and miraculously they were able to access information before the event. But anyway, hopefully that will not be happening because obviously security is high. 

Or high may be the wrong word, higher than it was before. What are we looking at from the OBR? Well, we're looking at how the economy is performing, expected to perform. Ultimately. You may have read in the press recently, the January the biggest tax receipts for any given month in living memory. 

But obviously January, 2026 was the basis of 24 5 tax year or derived from that primarily. So a lot of the self-assessment receipts may well have been sell at people crystallising tax events in fear of the government's first budget, let alone the second one. So to what extent that was a one-off blip will be quite interesting. 

And of course, income. Against expenditure and public borrowing is one of the things that the OBR will be looking at. The other thing is government debt, obviously, which feeds into that, which is huge. And obviously we're in a period of moment of lots of announcements on spending. Quite how you get the public debt down while spending certainly a lot more than the previous government on a variety of things I suppose is part of the trick that we may or may not see. 

And of course, the forecast that come through will dictate ultimately, in the next budget. How the economy was doing, whether there is any growth, and hence, do taxes need to go up again? Although you would question that which taxes could go up again and how far could they go? Because let's face it, they are at the highest level I think, in peaks time ever. 

Ultimately. So when you look at, some of the things that underpin the economy, you can make a guess at some of these things. Growth. Is lacking, let's say in any significant way. I think if you look at the last three months of 2025, it was 0.1%, which doesn't speak tremendously well. Just over 1% growth last year. 

Having said that, you look around the developed economies G seven particularly, were not unusual in that, things are pretty difficult to get massive growth going, gonna. A developed economy. And I think if you look at Britain, Britain is ultimately the oldest developed economy. 

Industrial revolution took forward, came place here, and so on. So we are at the top of that scale. How do you get significant growth? We certainly haven't got it at the moment. Personally I don't think higher taxes equate to growth, probably the opposite. But there appears to be no sign of that at the moment. 

Inflation, obviously, there's been a lot of talk about inflation going down. As we all know lower inflation doesn't mean prices aren't going up. It merely goes not going up quite as quick. And I think to me. You have to discount the sort of 10, 11% inflation we saw a few years ago because that was driven by, it's not peculiar to our economy. 

Most of the world were looking at high single digit, low double digit inflation because of partly the pandemic and knock on effects into supply chains and so on. But also because of what has happened in Ukraine and energy prices. So. When you try and discount that inflation is dropping, yes. Will it continue to drop? 

I suppose it depends, what other pressures you get through the taxation system to some extent. So you look at national minimum wage increases national insurance increases. Obviously we've got for big employers, salary sacrifice is gonna be another big bill down the line. When you're building things like that, obviously businesses react by saying, well, we'll put our prices up, try and pass it down the line. 

So it'd be quite interesting to see over the longer term, whether inflation does remain sticky, I think is the imp expression. Unemployment to me is the major one. Some of you may have seen the reports, although the last time, heist on employment. We've had for a long time, particularly youth unemployment, which I suspect is businesses cutting their cloth to some extent in light of national minimum wage increases and national insurance increases and so on and so forth. 

And looking forward to say, if we retain people, but I think youth unemployment is a real concern and it's not entirely clear. If you look at that, how do we encourage employers to take on more people when actually the taxation system is almost discouraging that, it's making it increasingly expensive to employ young people. 

And it's quite interesting, if you look back at the history of minimum wage there was always a differential rate, which was originally 18 to 25. And that was, bear in mind, this was introduced by the last labour government. It was in there to prevent employers saying, actually there's no difference between an 18-year-old and a 25-year-old. 

And hence, we'll, get somebody more experienced. It was designed. To encourage is maybe the wrong word, but not to discourage employers. Now, of course, one of this government's aims is to squeeze, and you may have seen this in the press, but one of the labour manifesto pledges was essentially to get rid of what they call discriminatory age bands. 

IE the 18 to 21 band. But if you push that up. The same rate as a, 21-year-old, 25-year-old. If you're not careful, you'll end up in the position either A, we employ a 16 or 17-year-old, or b well, we'll get somebody more experienced then. 'cause if it's costing us the same price as, somebody who's got no experience, well, we'll go for the, we'll go for the more experienced option. 

So there's a lot of things that float around the economy. It'll be lies, damn lies and statistics to some extent. But obviously we'll try and cut through all that for you. And we will be providing a summary on the night and a bit of an updated podcast certainly on Tuesday, just to see where the economy may be headed ultimately, because at the end of the day, it affects all of us. 

So anyway, hey, take care. Hope you're enjoying your sunbathing out there on this beautiful spring day. By the time you listen to this podcast, no doubt it'll be raining again. But anyway chin up. Spring is nearly here. Take care everybody. Bye.